How do I handle self employment reporting when a 2020 1099-NEC includes income that I did not receive until 2021, and I'm running my business on a cash basis?

[feldmanjones]

I was paid monthly on a retainer as an independent contractor. Although they cut checks for November and December 2020 and included both on their 2020 1099-NEC, I did not receive either of them until January 2021. On a cash basis, should these two payments be reported on my 2020 taxes, or 2021 taxes?

[AnnetteB6]

As a cash basis taxpayer, you generally would not report any income until you have received it. 

However, you do have to consider the constructive receipt of your income and when it was made available to you.  If the income for November and December was made available to you in 2020, but you just did not have it in hand until 2021, then you may need to account for that income in 2020 instead of 2021.  

If you determine due to the circumstances that you should report the income in 2021, but your 2020 1099-NEC includes the income, then report the full amount of income on your 2020 tax return along with an expense adjustment to account for the two months that will be reported on your 2021 return.  Be sure to keep good notes for your 2021 return since you will not have a matching 2021 Form 1099-NEC reporting those two months of income.  You will have to enter it as 'cash' on your 2021 return.

Take a look at the following TurboTax article for further discussion of the cash accounting method:

What is the cash method of accounting?

[feldmanjones]

Thank you for the response @AnnetteB6! But your example, while close, isn't accurate. The delay wasn't my choice-- it was the result of the well-publicized slowdown of the postal service. So I'm not sure what "constructive receipt" means or how "made available" applies. Regardless of when this company cut the checks, they did not arrive until 2021. 

[ToddL99]

You make a good point, but the IRS will be expecting you to report this income on your 2020 tax return - if you don't include it on your return, the IRS will send you a notice proposing to increase your 2020 taxes because of this income. 

The payer reported these amounts as a 2020 expense on their tax return and as 2020 income to you. You would have to prove that you didn't receive payment until 2021 and had no other options to receive payment in 2020 (e.g. direct deposit, contacted the payer regarding late payment, etc.) - and the IRS would have to accept your argument. The procedure for making your case is all manual and carried out by means of snail-mail. 

The chances of success oj your part are very low - late payments on account of mail delivery are very common and not likely to make the IRS change its processing & matching procedures.