1099-nec for 2024, received payment in 2025

[taxtommy]

Hello,

Looking to determine how to report the following...

Self-employed

Cash basis

Issue:

>  received 1099-NEC in 2024

>  didn't receive payment from this 1099-NEC until 2025

?  What is the best way to report this income;   with a 2024 1099-NEC / receiving the associated payment in 2025?

Thanks for any assistance!

Tom

[JamesG1]

Ideally, you could contact the issuer and have them correct the IRS form 1099-NEC.  

If that is not successful, you may enter the income reported on the IRS form 1099-NEC into your self-employment activity.  Then immediately create an expense to back out the income.

In TurboTax Online, the IRS form 1099-NEC would be reported within the self-employment activity by following these steps:

• Down the left side of the screen, click on Federal.
• Down the left side of the screen, click on Wages and Income.
• Under Your income and expenses, scroll down to Self-employment.  Click the down arrow to the right.
• Click to the right of Self-employment income and expenses.
• At the screen Your self-employed work summary, click Edit to the right of the activity.
• At the screen Let's enter any additional income, select Form 1099-NEC.
• At the screen Here's your info, select Add expenses for this work to add an expense line to back out the income not received in the current year.

[taxtommy]

JamesG1,

Thanks for the reply!

Could you explain a bit more on  “creating an expense to back out the income”?

Does Intuit/TurboTax have instructions on how to handle this unique situation?

Once completed, I presume that there is no tax liability on this income for 2024?

How will I handle/report the amount received in 2025 with the “2024 1099-NEC” on my 2025 taxes?

Thanks again,

Tom

[JamesG1]

In TurboTax Online, you would go to your self-employment activity.  Then follow these steps:

1. At the screen Here's your info, select Add expenses for this work.
2. At the screen Select any new expense categories you have, scroll down to Less Common and enter "Error" in the box.
3. At the screen Here's your info, click the pencil to the right of the expenses.
4. At the screen Let's enter the expenses, scroll down to the Description and enter "Posted in wrong year" and the amount.  Click Continue.

You are reporting $100 as income for the Self-employment activity.  Then you report $100 in expense for the Self-employment activity.  The net is $0 taxable income.

The amount received in 2025 will be reported in your Self-employment activity as Other self-employed income.  You may make an entry to explain the income.

@taxtommy 

[taxtommy]

JamesG1,

Thanks for the additional information!

I am having an issue locating the area to make your suggested changes. The helpful info that you have provided is directed at the "online" version of TurboTax, where I am using TurboTax Deluxe on my computer ... probably why I am having issues.

I will keep trying to locate the area where I can add expenses to a specific 1099-NEC previously entered.

Thanks,

Tom

[taxtommy]

BTW, I understand the solution, just cant locate where to enter the info!

Tom

[BrittanyS]

To enter the self-employment income and expenses in TurboTax Desktop you will want to make sure you are using the Home & Business version of TurboTax.  If needed, update to Home and Business by following these steps:

1. Select Help from the top bar
2. Select Upgrade TurboTax
3. Choose Home & Business and select upgrade now

Once you are using the right software, follow these steps to enter self-employment :

1. Sign in to TurboTax
2. Select Select Business
3. Select I'll choose what I work on
4. Select Start next to Business Income and Expenses

@taxtommy 

[taxtommy]

What are the steps to enter expenses  related to the 1099-NEC in question, once I  have upgraded TurboTax?

Thank you,

Tom

[BrittanyS]

To get to the expenses section for the 1099-NEC, follow these steps:

1. Select Start next to Business Income and Expenses
2. Answer Yes for "Did you have any income and expenses for a business in 2024?
3. Confirm your business name and address
4. Answer the question regarding whether "I started or acquired my business in 2024, I sold my business in 2024, or neither apply
5. Continue through the interview questions until you get to the "Your Business Screen"
6. Scroll down to Business Expenses
7. Select Start next to Other Common Business expenses (see screenshot below)
8. Select Start next to any business expenses you want to add (see screenshot below)

@taxtommy 

[taxtommy]

BrittnayS,

I am familiar with what you have suggested but they don't address my original question.

Issue:

> Received a 1099-NEC for 2024

> Didn't receive the monies associated with that 1099-NEC until 2025.

Question:

> What is the best way to handle this situation?

Previous suggestions:

>  create an expense to back out the income

>  add supporting note similar to: 

     -  "Not constructively received - reportable in 2025" 

        or

     -   "2024 1099-NEC income not received until 2025"

Thanks for your assistance!

Tom

[DianeW777]

The best way to handle it is for you to report it in the year you actually received it. This is called the 'constructive receipt' rule (described below). You are not required to report income until it is actually received.  If the company sent the money in 2024, but you did not receive it in 2024, then you are not required to report it until 2025.  

The recordkeeping will be your responsibility and so that part is important for you to know.  Keep notes with your tax file to explain why the 1099-NEC does not match your income. There is no need to add any statement to your tax return.  If the IRS has a question you can address it when and if it is requested.

IRS Rule: For federal income tax purposes, the doctrine of constructive receipt is used to determine when a cash-basis taxpayer has received gross income. A taxpayer is subject to tax in the current year if he or she has unfettered control in determining when items of income will or should be paid.

@taxtommy