One of my consulting clients sent me a 1099-MISC that included payment for work I did in 2018, but they didn't pay me for until 2019. How do I handle this on my taxes?

[bigsachem]

My understanding was that I do not report income until the year I receive it, but this client sent me a 1099-MISC that included Nonemployee compensation that I received in both 2018 and 2019. What do I report on my return? I am concerned about what will happen if I report an amount that does not match the 1099-MISC amount. Should I ask them for a corrected 1099-MISC, or just report the portion that I received in 2018?

[Coleen3 · Accepted solution]

It depends whether you (and he) have a cash basis or accrual basis business. He might use the accrual method where you use cash. It is probably just easier to report what you received and follow his lead. As long as it all gets reported, that is the important thing.

The main difference between accrual and cash basis accounting is the timing of when revenue and expenses are recognized. The cash method is most used by small businesses and for personal finances. The cash method accounts for revenue only when the money is received and for expenses only when the money is paid out. 

On the other hand, the accrual method accounts for revenue when it is earned and expenses goods and services when they are incurred. The revenue is recorded even if cash has not been received or if expenses have been incurred but no cash has been paid. Accrual accounting is the most common method used by businesses.

[bigsachem]

Not sure I follow - you're saying I should report what I received from him to match the 1099-MISC, even if I did not receive it until January 2019? I have other 1099-MISCs from other clients that reflect only what they paid me in 2018 (the cash method, I guess).

[Coleen3]

I'm just saying it would be easier. You don't want to report a number different from the 1099-Misc. If all income is reported that way, there will be a discrepancy. Ifr some is cash, it won't have to match. He will probably not issue you a new 1099. The only other way, if you don't want it to count is to back it out again on a miscellaneous line as income received in 2019.