1099 question

Old Feb 19th 2015, 3:48 pm
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Default 1099 question

Wife works as a contractor through a conduit company to the end client. Client pays conduit, conduit pays wifes' S corp, which files on a cash basis. Last year we had some problems getting the payments from the conduit, and he eventually lumped a few payments together, cut a check on Dec 31st and mailed it. Obviously we didn't receive it till January, so will be reported in our corp accounts as 2015 income, but the conduit has just sent the 1099 which includes it as a 2014 payment.

No doubt our accountant will sort it out, but I was just curious if anyone knew when the payment is deemed to have taken place from a 1099 perspective - when the check is written, when it is mailed, when it is cashed?
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Old Feb 19th 2015, 3:53 pm
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Default Re: 1099 question

Originally Posted by Yorkieabroad View Post
Wife works as a contractor through a conduit company to the end client. Client pays conduit, conduit pays wifes' S corp, which files on a cash basis. Last year we had some problems getting the payments from the conduit, and he eventually lumped a few payments together, cut a check on Dec 31st and mailed it. Obviously we didn't receive it till January, so will be reported in our corp accounts as 2015 income, but the conduit has just sent the 1099 which includes it as a 2014 payment.

No doubt our accountant will sort it out, but I was just curious if anyone knew when the payment is deemed to have taken place from a 1099 perspective - when the check is written, when it is mailed, when it is cashed?
My understanding (and I could be wrong) is that it's income as soon as it's invoiced. Presume your wife invoices the conduit?
So if the invoice for it was generated last year it's 2014 income.
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Old Feb 19th 2015, 7:41 pm
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Default Re: 1099 question

If the amount is not that much or won't substantially affect your eventual tax bill, you might just want to report it in the tax year noted on the check. That way your income amount and the 1099 info the IRS gets will be the same.

However, if it will cost you a lot more in taxes or you are just obsessive about reporting and paying for the proper tax year, then you can include a note with your return explaining the difference in your reported income and the 1099 data on file.

Will such a note satisfy an IRS examiner? Yes. No. Maybe.

Will it make the auditor question other things on your 1040? Yes. No. Maybe.

The problem with conflicting income payment/receipt dates is that it's hard to prove when you received a piece of mail via the U.S. Postal Service unless it is certified. Depending on your local mail service and where your client is located, you conceivably could receive a check dated Dec. 30 and mailed on that same day on Dec 31.

Even when you are completely honest about when you received the late-dated check, you have to ask yourself, is the explanation worth a possible audit that could arise from mismatched reporting info from you and your client? In most cases, the answer is "no," so most of us simply report the income as ours in the year noted on the check.

But again, the choice is yours. And many tax pros say that whatever you decide, it's important to that you be consistent in how you report.

If you can show that this is an annual issue and that the amount you didn't report the prior tax year was included in your next year's return, then you should be OK with the IRS.

Working around such situations also is advisable. When cash flow allows, I don't invoice clients after mid-December. That paperwork goes out on Jan. 1 of the next year to ensure there's no issue with late-dated checks.


Constructively received income, or what tax year applies to late-year payments? - Don't Mess With Taxes
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Old Feb 19th 2015, 7:54 pm
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Default Re: 1099 question

Originally Posted by Bink View Post
My understanding (and I could be wrong) is that it's income as soon as it's invoiced. Presume your wife invoices the conduit?
So if the invoice for it was generated last year it's 2014 income.
In the UK tax is accounted for strictly on a cash basis. I am not sure if it is the same in the US though I suspect it is.

To Yorkie: I would include the cheque in 2014 income to match the 1099, you have no control over the 1099 and I doubt that you can get it reissued to show 2015 income. It might not be strictly correct, but making the numbers consistent with the 1099 would IMO be the better of the alternatives.
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Old Feb 19th 2015, 8:59 pm
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Default Re: 1099 question

Originally Posted by Bink View Post
My understanding (and I could be wrong) is that it's income as soon as it's invoiced. Presume your wife invoices the conduit?
So if the invoice for it was generated last year it's 2014 income.
Thanks Bink. I think you are right if we were accounting on an accrual basis, but not so sure as we file on a cash basis. We have already filed for an extension due to this muppet, so that we can get all of our 2014 SEP contributions in, so once the accountant has cleared his decks for the earlier deadlines, I'll ask him how it works.
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Old Feb 19th 2015, 9:08 pm
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Default Re: 1099 question

Originally Posted by Michael View Post
If the amount is not that much or won't substantially affect your eventual tax bill, you might just want to report it in the tax year noted on the check. That way your income amount and the 1099 info the IRS gets will be the same.

However, if it will cost you a lot more in taxes or you are just obsessive about reporting and paying for the proper tax year, then you can include a note with your return explaining the difference in your reported income and the 1099 data on file.

Will such a note satisfy an IRS examiner? Yes. No. Maybe.

Will it make the auditor question other things on your 1040? Yes. No. Maybe.

The problem with conflicting income payment/receipt dates is that it's hard to prove when you received a piece of mail via the U.S. Postal Service unless it is certified. Depending on your local mail service and where your client is located, you conceivably could receive a check dated Dec. 30 and mailed on that same day on Dec 31.

Even when you are completely honest about when you received the late-dated check, you have to ask yourself, is the explanation worth a possible audit that could arise from mismatched reporting info from you and your client? In most cases, the answer is "no," so most of us simply report the income as ours in the year noted on the check.

But again, the choice is yours. And many tax pros say that whatever you decide, it's important to that you be consistent in how you report.

If you can show that this is an annual issue and that the amount you didn't report the prior tax year was included in your next year's return, then you should be OK with the IRS.

Working around such situations also is advisable. When cash flow allows, I don't invoice clients after mid-December. That paperwork goes out on Jan. 1 of the next year to ensure there's no issue with late-dated checks.


Constructively received income, or what tax year applies to late-year payments? - Don't Mess With Taxes
Its a reasonable sized chunk. The conduit was very bad at passing on payments, so this represented about 3 months payments, and he is still about another 2 months overdue as it is. My main concern is that his messing around is covering some misuse of funds. Really, he should just be a postbox, skimming his handling fee off the top and passing the rest on. The fact that he isn't doing that effectively is curious. The head client have assured they will underwrite it, so I am sure we will get the outstandign eventually, it's just a pain the way he is dicking around. I suspect he has signed his own termination with this little play...

I agree on the invoicing. We generally invoice 10th of the month and are normally on 30 days payment. We have always had good payers previously, so the end of the year has never been an issue before.

It's our corporate accounts, which a squeaky clean and very straightforward, so while I don't look forward to an audit, I'm not afraid of one as there is absolutely nothing to hide in there. We don't even claim a home office any more, which apparently is one of the big red flags for audit. We had a Texas Workforce Commission audit on our payroll records a couple of years ago and sailed through that no problems. That was back when my wife used to actually employ people - now she just flies solo, so a lot simpler.
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Old Feb 19th 2015, 9:11 pm
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Default Re: 1099 question

Originally Posted by Pulaski View Post
In the UK tax is accounted for strictly on a cash basis. I am not sure if it is the same in the US though I suspect it is.

To Yorkie: I would include the cheque in 2014 income to match the 1099, you have no control over the 1099 and I doubt that you can get it reissued to show 2015 income. It might not be strictly correct, but making the numbers consistent with the 1099 would IMO be the better of the alternatives.
The only problem, as Michael mentioned earlier, is consistency. We have always done it on a cash basis, so if all of a sudden we account for income we actually received in 2015 as if it had been 2014 income, its not tallying with previous years. I'll chat with the accountant later - he's been round the block a few times, so sure this will be a non-problem for him.
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Old Feb 21st 2015, 10:49 pm
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Default Re: 1099 question

Legally it's when you physically get it, but given you've got a 1099 for 2014 I'd put it down as 2014 otherwise if you include it in 2015 and then get another 1099 for 2015 you're going find yourself in a higher tax bracket. Although there's always the FICA aspect of it, i.e. you skip one year's FICA, that saves more money than the higher income tax.

My understanding (and I could be wrong) is that it's income as soon as it's invoiced. Presume your wife invoices the conduit?
So if the invoice for it was generated last year it's 2014 income.
It's when you actually get it... because a lot of people don't pay and then it becomes a debt.
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