S Corp Check written from Client on Dec 31 2016 but encashed in 2017.

[kevin_ny_2003]

I worked for a client in Nov 2016 for which they mailed me a check dated Dec 31 2016.  Since i got the check in mail in Jan 2017 , I desposited the check in the S corp Bank Account  the amount came in my bank in 2017 , Should I be repoting this income for 2016 or 2017?

Thanks

[AmyT · Accepted solution]

If your S corporation operates on the cash basis (you report income when received and expenses when paid), a check received in 2017 is considered to be 2017 income.

[kevin_ny_2003]

Thanks for your reply , yes we report on cash basis ( income received And expenses incurred ) . The client company sent me 1099 with the same amount for 2016 .  In this case how do I let IRS know or should I ask for correction in 1099 issued by the client ?  Thanks

[AmyT]

It is quite common for someone to mail a check at the very end of the year in order to include the amount in their expenses for the year.  This does not necessarily mean that you received the income and have to include it on your income tax returns.  They will almost certainly not be willing to change the 1099 to reflect this timing difference.

Additional information:  Since your business is organized as a corporation, none of your clients needs to issue 1099s to you, although some will probably do so anyway.

If the total recipts you report for the year exceed the amount reported on all 1099s that you receive, you will not have any problems if you only include the income actually received from that customer.  However, even if you need to report the full amount, there is a workaround.  You will want to report the amount included on the 1099 but NOT received during 2016 as a miscellaneous expense.  Use "1099 income not received" as the expense description.

Please note that whether you reduce your income or treat the difference as an expense, it will be 2017 income to you that will not be included in the 1099 that you receive from that customer.

[kevin_ny_2003]

Can you please confirm on which line item of Form 1120S should the expense be listed as "1099 income not received" ?

[AmyT]

It will be included in line 19 - Other deductions on the 1120-S.