Is it income if you can't cash the check?

[lifeisgood]

Real simple question to help you ex-tax accountants stay sharp.

I received a check late Friday afternoon on 12/29 - an interest payment on a loan. The banks were closed for the holiday weekend and there was no way of depositing the $ in 2006.

Am I supposed to declare this as income in 2006? I'm sure the guy who wrote the check declared it as an expense.

 

[roadkill]

Yes, it is income to you in 2006....commonly referred to as "constructive receipt". The fact that you did not/could not cash the check before the end of the year does not matter.

 

[Texas Proud]

ding ding ding ding ding....

Roadkill has it right.... easy question...

And to make it even more fun... what if you had asked him to post date the check to January 1st


Now, not many would do it, but it is still constructive receipt and should be in 2006...

 

[mickeyd]

Here is a related Q.

I receive military pension retired pay. The January 2007 payment was directly deposited into my bank account on 12/29/06. Constructive receipt? Probably not, because they will issue a 1099 that includes all payments made from Jan-Dec (but not this one ) in Jan 2007. I know this from previous experience in years past when a simular thing happened.

Does the US Government have different IRS rules?

 

[Nords]

Does the US Government have different IRS rules?

Is that an ingenuous question?!?

The fed govt is required by law to make your pension check available to you by the first of the month, so it's usually deposited on the last previous working day (this year mine hit on 29 Dec). I don't think the IRS is going to dispute their millions of 1099-Rs, but that law was made before ATMs effectively made banks open 24/7.

The philosophical debate is interesting, but I'd match the 1099s...

 

[grumpy]

Real simple question to help you ex-tax accountants stay sharp.

I received a check late Friday afternoon on 12/29 - an interest payment on a loan. The banks were closed for the holiday weekend and there was no way of depositing the $ in 2006.

Am I supposed to declare this as income in 2006? I'm sure the guy who wrote the check declared it as an expense.

If you received the check by mail, who besides you knows when you received it? The date on the check is irrelevant. Count it as income in which ever year your tax situation makes best. The IRS certainly can't know on what date you received the check.

Grumpy

 

[magellan_nh]

If you received the check by mail, who besides you knows when you received it?

All of us know. And since big brother is always watching, Uncle Sam knows too

... He sees you when you're posting, he knows when you're awake, he knows if you've been bad or good...

 

[AltaRed]

If you received the check by mail, who besides you knows when you received it? The date on the check is irrelevant. Count it as income in which ever year your tax situation makes best. The IRS certainly can't know on what date you received the check.

Grumpy

It does matter what date is on the check If it is for services received/rendered in 2006 and is posted in 2006, it is 2006 income. Same thing for mutual fund distributions which are declared late December but may not be posted in your account until next week.

 

[Martha]

The IRS position:

You are generally taxed on income that is available to you, regardless of whether it is actually in your possession.

A valid check that you received or that was made available to you before the end of the tax year is considered income constructively received in that year, even if you do not cash the check or deposit it to your account until the next year. For example, if the postal service tries to deliver a check to you on the last day of the tax year but you are not at home to receive it, you must include the amount in your income for that tax year. If the check was mailed so that it could not possibly reach you until after the end of the tax year, and you could not otherwise get the funds before the end of the year, you include the amount in your income for the next year.




http://www.irs.gov/businesses/small/article/0,,id=117613,00.html

As a practical matter, If you get a 1099 I would match up to the 1099s. Otherwise, who knows but you.

 

[lifeisgood]

As usual, the collective wisdom of the forum is... wise. Constructive receipt it is. [Knocks on wood, i.e. taps forehead] Haven't had an audit yet and don't want one now. As my daddy used to say, you can eat well, or you can sleep well. Zzzz! Thanks.

 

[audreyh1]

Yeah I was kind of wondering too. I initiated an electronic bank transfer to my in-laws yesterday (Saturday), and I'm hoping it counts within 2006 gifting allowance. This is within a single banking system, and Bank of America says the transfer is immediate and it already shows as pending on my account.

Audrey

 

[Texas Proud]

Here is a related Q.

I receive a military pension. The January 2007 payment was directly deposited into my bank account on 12/29/06. Constructive receipt? Probably not, because they will issue a 1099 that includes all payments made from Jan-Dec (but not this one ) in Jan 2007. I know this from previous experience in years past when a simular thing happened.

Does the US Government have different IRS rules?

it is an interesting question.... but the real answer is that you should include it in your 2006 return... now, I don't know of anybody that would or any tax accountant that would make you go against the 1099... but you RECEIVED it in 2006 as it is electronically deposited in your account... no question when you got it...

And no, they don't have different rules...

 

[OAG]

Military Retiree Pay was, in the past, paid on the LAST day of the month. Some time ago (as I remember it was during President Reagan's term) it was changed to the FIRST day of the following month (part of the reorganization of the budget process, at the time; moving it "saved" 1/12 of the money, thereby "reducing" the deficit for the year that "lost" one payment).

In any event you get 12 military payments of "retired pay" (only VA recipients can get "Pensions" from Military service, if the qualify) each year. Just look at your 1099R or your "Retiree Account Statement". Both of these forms are available on line at http://early-retirement.org/forums/index.php (provided you register on the site). The 1099R can also be downloaded and used to file your taxes (you do not have to wait for them to mail it to you).

 

[Martha]

Yeah I was kind of wondering too. I initiated an electronic bank transfer to my in-laws yesterday (Saturday), and I'm hoping it counts within 2006 gifting allowance. This is within a single banking system, and Bank of America says the transfer is immediate and it already shows as pending on my account.

Audrey

I think you are just fine for the 2006 gift.

 

[grumpy]

All of us know. And since big brother is always watching, Uncle Sam knows too

... He sees you when you're posting, he knows when you're awake, he knows if you've been bad or good...

I'm glad I am not that paranoid! Unless the check in question is VERY large big brother couldn't be bothered and wouldn't care how and when you report it.

Grumpy

 

[mickeyd]

it is an interesting question.... but the real answer is that you should include it in your 2006 return

On the surface it certainly seems that that would be the only accurate way to account for it (in 2006 income). However, when the 2007 1099-R is issued in Jan 2008 this money that I received on 12/29/06 will indeed be included in my 2007 retired pay. If I declare it as 2006 income and they (Military) include it in my 2007 income I would be including it as income in two different years 2006 & 2007 and I'm sure that Congress (and the IRS) did not intend on me paying for it twice.

 

[Texas Proud]

On the surface it certainly seems that that would be the only accurate way to account for it (in 2006 income). However, when the 2007 1099-R is issued in Jan 2008 this money that I received on 12/29/06 will indeed be included in my 2007 retired pay. If I declare it as 2006 income and they (Military) include it in my 2007 income I would be including it as income in two different years 2006 & 2007 and I'm sure that Congress (and the IRS) did not intend on me paying for it twice.

A 1099 is not always accurate... let me give an example from the opposite direction...

One year when I needed deductions I paid my mortgage payment the last day of the year... the mortgage company did not put it on my statement as paid. I put their number down on the return and then added the extra payement. The next year, I put down the reported amount and subtracted the payment I made last year....

AGAIN, my answer is based on the 'rules' and not the 1099. Most people ignore the rules and follow the 1099....

OH... another example I just remembered... I had a friend who won a trip to an Caribean (sp)... island. They sent him a 1099 for a inflated price. He called to complain to me about it... He did research and found he could buy the same trip for less than half price, but if he did not put down the 1099 amount it would be a flag... So, we had him put down the 1099 amount and then show a reduction in income do to the inflated price. We attached a schedule in the back to show the 'true price' and where we got them... So, he matched the 1099, but only paid tax on what he earned... the IRS never questioned it...