Down payment from client counts to what tax year

[Nika3]

Will a deposit by a client in 2020 for services I will do exclusively in 2021 count to income tax 2020 or 2021? Is there a difference if they pay now via venmo or a check I can cash in 2021?

We're signing contract now, usually with a deposit right away but I need the deposit to count to 2021. I will be working with them  starting in 2021 for a few weeks and the deposit applies to the last two weeks of service.

[Opus 17]

Most taxpayers operate on cash-based accounting. That means that income is reported on your tax return as of the date you actually receive it. If you are given a check that is valid, that counts as receiving it, even if you don’t actually deposit it until later.

With accrual-based accounting, you might only book the revenue when the job starts. But accrual basis county is complicated and usually requires an accountant to help you set it up, so you would already know if your business used it.

[Nika3]

Thank you, that is very helpful! I operate on cash based accounting. So I might just do the contract signing now and the deposit in January. I think the deposit will just barely push me into the next tax bracket and I want to avoid that. 

[Opus 17]

Remember that if you do cross the threshold into the next tax bracket, only the income over that threshold is taxed at the higher rate, not all of your income.