Invoiced, but haven't received payments - taxes this year or next?

[bittheory]

I freelance on the side. This month was especially good with 4 separate invoices being sent out this month. I have no received payment for any of them yet and am trying to do some end of year tax planning looking into 2016.

Does anyone know if the payment I receive will be on my 2015 or 2016 taxes? I'm assuming at least one of these checks is in the mail, so technically the check has been cut.

Thank you everyone. And happy new year.

[iamlindoro]

They go on your taxes for the year the payment is included on your 1099.  If the check is in the mail, odds are it will be on the 1099 they issue you in a few weeks.  Thus, you have to include it on this year's taxes, because the government will get a record of how much you were paid, and will be none too pleased if you report a different amount.

[dandarc]

Assuming you are a cash-basis taxpayer, technically the taxes are due in the year when you have a check in hand. 

Seems you can account for this via a note or attachment on your Schedule C, if you think it is worth it.  Had this happen with about $10,000 in 2013/14 - submitted my invoice for Dec. 2013 on Dec. 31st, and at first was pleased when I got the notice the transfer was in progress within minutes of sending it in.  My contracting middle-man is a smart guy - he wants to defer those taxes just like I do! 

I just reported it as the 1099 said, and said 'woohoo! - I can do more solo 401K match for 2013!'  Now I am waiting until 2016 to send my invoice for December 2015 hours.

[terran]

They go on your taxes for the year the payment is included on your 1099.  If the check is in the mail, odds are it will be on the 1099 they issue you in a few weeks.  Thus, you have to include it on this year's taxes, because the government will get a record of how much you were paid, and will be none too pleased if you report a different amount.

Assuming the OP follows cash basis accounting rather than accrual (pretty common for sole proprietors) this isn't actually true. The income should be applied to the year in which it has been constructively received which mostly means when the check is in your possession. If the employer is local it can also include when the payment was available for you to pick up whether or not you actually did. Here's some more info: https://www.law.cornell.edu/cfr/text/26/1.451-2

From a practical perspective, I'm sure you're not going to get in trouble if you just follow what the 1099 they issue says since, as iamlindoro says, the IRS will receive this record and will have an issue if the discrepancy isn't explained. If you do want to claim the income in 2016 instead despite it being reflected on the 1099 for 2015, the recommendation I've seen is that you should claim the income but add an expense for the same amount saying something to the effect of "income not constructively received in 2015." You will of course need to make sure you include this income on your 2016 taxes.

Something else you might want to be a little wary of is the postmark. If it was mailed a few days before the end of the year, I would think you'd be safe (I'd keep the envelope), but if it was mailed awhile ago and it's believable that you would have received it by the end of the year I would be a little more cautious.

Too late now, but this year I stopped sending invoices after the middle of December and if questioned explained I'd be fine sending one if they could commit to getting the check to me by the end of the year, but otherwise I'd rather wait to avoid this discrepancy. Didn't seem to be a problem, though most of my invoices go out at the end of the month anyway.

[Cathy]

... I'm sure you're not going to get in trouble if you just follow what the 1099 they issue says ...

Under the regulations, it is not reasonable to rely on the contents of a Form 1099 if "a taxpayer knows ... that [the] information [on the Form 1099] is inconsistent with ... the taxpayer's knowledge of the transaction". 26 CFR 1.6664-4(b)(1). If the taxpayer knows that the income was received in 2016, it is not reasonable to rely on a Form 1099 that says it was received in 2015. The repercussions would potentially occur with respect to the taxable year where the income is under-reported.

[bittheory]

I follow cash basis accounting as a sole proprietor. Sounds like since I did not receive any checks today, these last invoices will be on my 2016 taxes, but seems to be a little debate. Guess I'll know for sure when I receive my 1099s.

[protostache]

I have the opposite problem. I received a stub for a payment dated 2016 January 1 when the client submitted payment through their payroll system on Monday. The payment showed up today.

Not really sure what to do, but I guess I'll see what the 1099 and my accountant say.

[terran]

I follow cash basis accounting as a sole proprietor. Sounds like since I did not receive any checks today, these last invoices will be on my 2016 taxes, but seems to be a little debate. Guess I'll know for sure when I receive my 1099s.

I have the opposite problem. I received a stub for a payment dated 2016 January 1 when the client submitted payment through their payroll system on Monday. The payment showed up today.

Not really sure what to do, but I guess I'll see what the 1099 and my accountant say.

I think you're both not quite getting it: it doesn't matter what the 1099 says, you should be claiming the income in the year you constructively receive it. Your client might claim the expense in a different year than you claim the income either because of when they sent it, or the accounting method they use, but that's fine. At the end of the day, as a cash basis business, when you receive the income or pay for the expense is when you should claim that income or expense.

[Vilgan]

I confess to bothering the accountants a bit more about timely checks during December :P

[Chavak]

Just to clarify.....if I use the accrual method for my business, and I provided a service in 2015 but did not receive payment until 2016, I count the income on my 2015 taxes.
Correct?

[Vilgan]

Just to clarify.....if I use the accrual method for my business, and I provided a service in 2015 but did not receive payment until 2016, I count the income on my 2015 taxes.
Correct?

When did you invoice them?

[Chavak]

Invoiced December 2015

If they had been invoiced in Jan 2016, then I assume it would have gone on 2016 taxes?