If I have a 1099-MISC for 2017, but a portion was not received until 2018 do I include the total amount on 1099-MISC, or amount received by end of business on 12/31/2017?

[idguy007]

I operate with the cash accrual basis.  This client had paid me to do work throughout the 2017 calendar year.  I had one final check issued by my client in 2017, but I did not receive it in time to get it into the bank until 2018 .  So the 1099-MISC issued to me by the client is correct for their purposes, but shows I collected more money in 2017 then I actually did.  How do I reconcile this on my taxes for 2017?

[AnthonyC]

If you had constructive receipt of the income in 2017, then it would be reportable for your 2017 tax return even though you may not have physically placed it into your bank account.

Per IRS Pub 538 (p. 😎, "under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year."  Further "income is constructively received when an amount is credited to your account or made available to you without restriction. You do not need to have possession of it."

Here is a textbook example of constructive receipt:  A business receives a check in payment from a customer on December 30, but doesn't deposit that payment check until January 1. Since the business had control over the check in December, it is considered to have received the funds in December.

[idguy007]

I did not have the check until after January 1, 2018.

[AnthonyC]

Under these facts, the concept outlined above would not apply.   I was originally thinking you had some control over the check but did not deposit it and, even if it was mailed to you, you still would not have had access or control to it until 2018.

The proper way is to report the income in the correct year - so 2018.  For 2017, you will have to enter the 1099-MISC as is (because the 1099-MISC is correct from the issuer perspective) and then make an adjustment for your Schedule C for the amount - labeled as "Not constructively received - reportable in 2018"  You could make the adjustment by entering this as a negative income number or as an expense.

[Edited 2.5 3:17pm]

[progress909]

Could you provide a source for this treatment? "make an adjustment for your Schedule C for the amount - labeled as "Not constructively received - reportable in 2018"  You could make the adjustment by entering this as a negative income number or as an expense."

[EnsomUlve]

I am in the same position. I perform work as a contractor, and am issued a 1099-Misc by a company that uses accrual based accounting. I am on cash basis. The company includes the December payment on their 1099-Misc. I do not receive the payment, via US mail,, until 2nd week of the following month, e.g.., mid-January the following year. As such, I request that my accountant use the 1099 # for Gross Income on Schedule C, and  add that December payment to Schedule C, Expenses as "Income not constructively received in <tax year>".

That said, what do you do the following year when you have to account for the income received in January, e.g., the following year same thing happens, where December payment is again listed as "Income not constructively received in <tax year>", but, how do you account for the income which was received/booked  in January of the current tax year for previously year's December payment (included on previous year's 1099-Misc)?

Can this be entered as a negative expense on Schedule C, Part IV Other Expenses, along with positive expense  for the income not constructively received (December payment), i.e., two line items on Schedule C, Part IV Other Expenses, section, one to account for "income constructively" received in January (negative #), and the other "income not constructively received <current tax year>" (positive #).

This would then always allow my accountant to use the reported 1099-Misc # on Schedule C, Gross Receipts, and account for the inflow in January and expense December payment which will be accounted for the following year. Gross Receipts on Schedule C + two line items, one negative, one positive, would be exactly what is reflected as income for current year on my books/cash-basis.

[AliciaP1]

The correct treatment would be to report your business cash transactions for the tax year.  

The 1099-MISC is merely an informational return.  If you are reporting your business on a cash basis, you should be reporting the income you received during the tax year and deducting the expenses you paid during the tax year.  The entry you have lined out above makes you an accrual-based reporter because you are reporting income you had not received during the tax year.

[EnsomUlve]

@AliciaP1Thanks for the reply.

My accountant has stated that if I list my book-based income, which is a very small percentage lower, than what is reported on the 1099-Misc, it likely result in a flagging by the IRS, an associated letter requesting an explanation why my reported income is less than what is reported on the 1099-Misc.

My preference is, and has always been, to list the income and expenses exactly as reflected in my books for the tax year on Schedule C Gross receipts despite the small discrepancy.  On years where my booked income exceeds what is reported via 1099, there is no "mismatch" issue, or potential flag.

That said, I have seen posts on TurboTax , and specifically above in previous replies,  that state you should always list the 1099-Misc # for Gross receipts and add line item(s) to account for the discrepancy as per my original post, e.g., "income not constructively received". Another link here: https://ttlc.intuit.com/community/taxes/discussion/i-use-accrual-client-is-cash-how-to-handle-for-th...

I am just trying to assess what is more accurate/correct, and to understand any implications, e.g., will the IRS automatically flag a return if Schedule C Gross receipts are less than reported income via 1099-Misc, even if the discrepancy is very small, e.g., in my case 1099 Misc is 1.02% larger, a very small discrepancy.

My inclination is to instruct my accountant to show exactly what I booked for income and expenses in the tax year, and if IRS flags it due to small mismatch, provide an explanation, e.g., payer is accrual-based, and I am cash-based and that introduces the discrepancy due to December payment

Thoughts?