Will DanDarc's client pay last invoice of 2019 on time, 1099 issues if not?

[dandarc]

So, my main client has taken to not paying me on time - at least half of my invoices have been paid late in 2019. Not super late - I send a reminder as soon as they are, in fact, late with paying me and then they send me payment via ACH and the money is in my account the next day typically.

Per the terms of my contract, payment is due within 30 days of receipt. So as with most months, I sent the invoice on 12/1 - payment should be received on or before 12/31, but if it is a repeat of last month, on 1/1 I'll be sending a reminder email, and I'll actually be paid on 1/2 or 1/3. Wonder what others think will happen on this one? Company was acquired and this "we don't always pay our bills on time" is something new for me.

Secondarily, can someone remind me what to do if they pay me in 2020, but include the income on my 1099 for 2019? I have been paid just enough so far this year to max my SoloK, so the timing of this last payment doesn't really impact anything tax-wise that I'm aware of (other than, you know deferring taxes to 2020 if it is paid late). I remember something from a few years back that could be done to re-concile a 1099 tax-year mismatch, but I don't remember the details.

[terran]

If they include income you receive (money in your account or check in your mailbox) in 2020 on your 2019 1099 you should list it as income on your Schedule C (so the 1099 matches) and add an expense with a note for "income not constructively received in 2019." Make sure you add the income to your 2020 return. I found this advice somewhere or other (maybe a turbotax support forum request) and have used it in more than one year. Hasn't been a problem yet.

[robartsd]

Perhaps sending a "due in 3 days" reminder on 12/27/2019 will help get the payment by 12/31. If they account for this as an expense on their taxes, they might prefer to be sure it gets sent in time to be on their 2019 return (of course they could be FY filers so 12/31 might not be that important to them).

[dandarc]

Perhaps sending a "due in 3 days" reminder on 12/27/2019 will help get the payment by 12/31. If they account for this as an expense on their taxes, they might prefer to be sure it gets sent in time to be on their 2019 return (of course they could be FY filers so 12/31 might not be that important to them).

But I kind of want them to not pay until 2020, although increasing 2020 by a month might more than off-set the benefit of 2019 being reduced by a month. I guess I should do the math there.

[robartsd]

Perhaps sending a "due in 3 days" reminder on 12/27/2019 will help get the payment by 12/31. If they account for this as an expense on their taxes, they might prefer to be sure it gets sent in time to be on their 2019 return (of course they could be FY filers so 12/31 might not be that important to them).

But I kind of want them to not pay until 2020, although increasing 2020 by a month might more than off-set the benefit of 2019 being reduced by a month. I guess I should do the math there.

Most times it works out to about the same - just your marginal tax rate in one year vs. the other. Most people understand that if the extra 2020 income would mean a higher marginal tax rate it would be bad overall. But conversely, if the reduced 2019 income would put you in a lower marginal tax rate bracket you can still end up paying more overall because you no longer use the entire bracket and end up having money that could have been taxed in the lower bracket in 2019 taxed in the higher bracket in 2020. The only situation I'm aware of where moving income from one tax year to another would benefit you is if your steady income is just high enough to push you off a tax cliff (such as eliminating eligibility for a credit). I'm poised to use such an advantage in 2020.

We currently have more tax advantaged space than capacity to save. I don't expect this to change. I realized when filing our 2018 taxes, that with a small but achievable reduction in spending we could sustain an AGI low enough to claim the Saver's Tax Credit at 20% instead of 10% ($800 instead of $400). I thought about what it would take to structure our 2019 income to take advantage of this. I realized that our pre-MMM auto payment was going away in August 2019 and student loan payment were going away in March 2020 so soon the bulk of the spending cuts needed would be absolutely painless. Then I saw that reducing AGI a few thousand more would qualify us for the credit at 50%. At 50% the credit is worth up to $2000, though our tax liability with this AGI will only be about $1500 (I'm pretty sure it is impossible to simultaneously be eligible for $2000 in this credit and have $2000 in federal income tax liability). Instead of structuring our income to save $400 in 2019 taxes, we've let our savings account accumulate extra this year so that we have plenty to structure our income to eliminate our 2020 federal income tax (realize no more than $39,000 in AGI in 2020). A stretch goal is to make this a sustainable spending level - strangely as earned income increases this goal gets harder because FICA taxes do not reduce AGI. Since the difference between claiming the credit at 10% and 50% is $26,000 in 2020, we should be able to occasionally choose to only save enough in tax advantaged accounts to claim the 10% credit while realizing no federal income tax in most years even if we spend too much to eliminate our federal income tax every year. I expect this strategy will reduce our effective federal income tax rate significantly until we start withdrawing from retirement accounts.

[dandarc]

sounds like a smart play there with the saver's credit. We had started a similar strategy of alternating years with property tax and charitable donations. Then they bumped the standard deduction up so high, even doing that it would be difficult for itemized to exceed the standard deduction.

[dandarc]

If they include income you receive (money in your account or check in your mailbox) in 2020 on your 2019 1099 you should list it as income on your Schedule C (so the 1099 matches) and add an expense with a note for "income not constructively received in 2019." Make sure you add the income to your 2020 return. I found this advice somewhere or other (maybe a turbotax support forum request) and have used it in more than one year. Hasn't been a problem yet.

Thanks for that - I couldn't find the procedure. I'm betting it happens this way this year, but maybe they'll pay on time and the angst will be for nothing.

When my contract needs to be re-upped, I'm thinking about asking for a ~5% raise in my hourly rate and then offering a 1% discount if paid within 7 days coupled with a 1% per month late fee that starts accruing on day 31. Maybe the discount will get them to just pay the bill without me having to do anything to remind them.

Company I was working with before this one paid these invoices like clockwork - I don't think it was ever more than 3 days after the invoice was sent for the money to be in my account, so I've seen how well it can be done and this is particularly annoying to me.

[dandarc]

Turns out, it came in exactly on time today.

[merince]

Adding a late fee usually works wonders for slow/late payers