OCR Text |
Show A CHECK IN THE MAIL Ii you receive a check on December 31, is it income? I( you pay an otherwise deductible expense on December31 by check, can you take a deduction? If you, as a "cash basis taxpayer," receive a check on the last day of your tax year, without restrictions on its use, it will be income to you even if it is received after banking hours. If the check turns out to be bad, you had no income in the year of receipt. A cash basis taxpayer is one who reports his income and deductions on the basis of when money is paid out as opposed to an "accrual basis taxpayer" who recognizes his income as accounts receivable when the transaction is completed and recognizes his expenses at the time they are incurred. Under the doctrine of "constructive receipt," the money must be available to you for immediate use and enjoyment. Therefore, if a check is mailed to you and you do not receive it until the next year, it is not income to you until the next year, it is not income to you until received. If, however, you could have picked it up by simply showing in person, but chose not to do so, you have constructively received the money and it will be taxable to you. The same holds true if your "agent" received a check on your behalf. If you sell an item and agree, even orally, that the money is to be received at some iuture date, you do nol have constructive receipt. This allows you to perfect a sale and schedule the money to be received at a time agreeable to both you and the buyer. You will generally receive an expense deduction for checks that you write on December 31. The facts and circumstances on some such disbursements could lead the IKS to challenge your deduction. |