If a payment is made in December and the 1099-MISC was sent out in late December (ie. mailed on Dec 30th) the issuer will obviously deduct there but how does the recipient handle this since he won't receive the 1099 until January?

asked 13 Nov '09, 06:26

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TaxQueries ♦♦
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edited 29 May '10, 18:29

What payment, non employee compensation, interest income, cancellation of debt? What year as well?

(13 Nov '09, 18:04) SandySea

The question is too vague and confusing. What was mailed? The check for the work done or the 1099. When was each mailed. What kind of income and 1099 was it. You will never recieve the 1099 before January and usually late in the month. So are you talking about a payment sent and received or the 1099?

(13 Nov '09, 20:57) AJ

Actually, this is quite common. And the answer is very simple.

1) Report the income in the year stated on the 1099. You want IRS computers to match up to your Schedule C.

2) Deduct the income on page 2 of the Schedule C on one of the blank lines. Your description is - Income Recieved in 2010.

3) Put the 1099 into your 2010 file and remember to include the income in 2010.

Of course, if you do all your bookkeeping throughout the year, you probably won't need to worry about the discrepancy. After all, even though they should, most people don't send you 1099s. So your business income should generally be higher than the total of your 1099s anyway.

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answered 13 Nov '09, 15:00

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Eva; only addition...OP did not say what 1099 they were issued...was it a prize, earned income, other income? So Schedule C may not the the appropriate form.

(13 Nov '09, 16:04) SandySea

This is fine provided there is no "constructuve receipt" issue.

(13 Nov '09, 19:01) Brent Berkman

Your issue is sourced on two separate issues.

First is the method of accounting used by the recipient - is he cash basis or accrual basis. Most small busiensses are cash basis and don't have to report income until it is received. BUT if he elected accrual basis then the income is taxable when earned NOT when received.

The issue based in the doctrine of Constructive Receipt - WHEN was the money actually AVAILABLE to the recipient WITHOUT RESTRICTION is what matters here. Its a bit convoluted, and sometimes doesn't seem fair, but here's the way it works.

You have to look at when the money was AVAILABLE WITHOUT RESTRICTION to the recipient. IF the money was available in 2008 then its taxable in 2008 regardless of when the recipient actually GOT the money.

I'll give you some examples -

The check is cut, signed and mailed on December 20, 2008. It was delivered by the post office on December 30 BUT the recipient was out of town on Christmas vacation and did not deposit the check until they returned on January 5, 2009. The money was available to the recipeint without restriction on December 30, 2008 so it's taxable for 2008.

Assume that in all prior dealings the recipeint picked up the check from the issuer. When the check for the December work ready (assume 12/30/08) the recipient was called and told his check was ready. BUT he was out of town so they mailed the check and issued the 1099. The money is taxable in 2008 since they money was available without restriction under terms that had been previously worked out.

Lastly, assume that this was the first ever such engagement. Work was done and billed and the check was cut, signed actually mailed on December 30, 2008. This money was NOT available to the recipient without restriction until 2009. BUT a 1099 was issued for 2008.

The technically correct way to fix this is to get the issuer to issue a corrected 1099. BUT that will almost never happen. So you have to find what we call a "Work-Around" - a way to report what actually applies to the recipient.

The workaround is this - include the money in gross income, so the IRS can trace the income to the recipient's return. BUT then back it off the return as income received and reported in a subsequent year. This ties the 1099 to the return for the IRS buts treats it properly for the recipient.

There is a TRAP here that you have to be mindful of. Many small contractors do NOT keep good records, especially for income. Instead they rely far too much on the 1099s they get to report their income. IF you back this income off the 2008 return because it belongs on the 2009 return you have to find a way to make sure that it actually gets on the 2009 return. It would be very easy to miss if you rely on ONLY the 1099s to report gross income.

Hope this helps.

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answered 13 Nov '09, 16:04

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Best be sure to do "matching" of revenues and expenses. I still don't see why they are "waiting" for the 1099 to report the income. Either you received it or you did not. And why did they send out 2009 1099's early?

(13 Nov '09, 17:13) SandySea

Good answer and additional comment!

(13 Nov '09, 19:00) Brent Berkman

Just because he did not get the 1099 does not mean he did not earn the income in the same year. So the recipient still reports the income regardless of the fact of receiving the 1099 in another year.

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answered 13 Nov '09, 14:06

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The year when the 1099 was received does not matter (except if it was sent Express Mail, UPS, FedEx, etc., in which case it matters for purposes of determining whether you are entitled to a refund of the shipping/mailing charge, due to late delivery, but does not matter for tax purposes).

The money shown the 1099 must be reported on the tax return for the year when the money (not the 1099) was received, or on the tax return for the year shown on the 1099, not the year when the 1099 was received.

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answered 15 Nov '09, 20:51

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stephenweins...
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Unless their is an error or "supportable position" regarding a constructive receipt issue with the Form 1099 amount in which case the 1099 should be corrected or Form 8275 attached to the tax return explaining the exception.

(15 Nov '09, 21:18) Brent Berkman

Additionally, the question did not seem to indicate any issue with the amount or correct reporting, only an issue with when the 1099 was received.

(15 Nov '09, 21:19) Brent Berkman

For 2009, the due date for furnishing 1099-B, 1099-S, and 1099-Misc (if amounts reported in boxes 8 or 14) to recipients is February 15th, however, it appears that the other 1099s are required to be furnished by January 31st.

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answered 13 Nov '09, 06:42

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Brent Berkman
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The receiver will adjust on his/her return the amount truly received in the proper tax year.

Helen, EA in PA

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answered 13 Nov '09, 12:27

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Helen EA in PA
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U.S. Mail is a reasonable & acceptable method of delivery for sending payments and establishing constructive receipt by the payee. However, the question did not ask which year would the income be taxable in, only the issue regarding receipt of the 1099 in January, which is when most 1099s are received by taxpayers.

(13 Nov '09, 14:20) Brent Berkman

I can't believe how many people don't even understand the question. The question has nothing to do with when the 1099 was received.

Here's the situation: The payer cuts a check on 12/31/2009 for $500. He didn't send any more than that in 2009 so he doesn't send a 1099 for 2009. He also does not include that money on the 1099 for 2010 because on his records it was paid in 2009. But his bookkeeper takes about a week to process it before mailing the check, and I don't receive it in the mail until mid-January 2010, so I need to report it as 2010 income – but it's not on the 1099 for 2010.

Then, at the end of 2010 he cuts a check for $2000 on 12/31/2010, so he includes that $2000 in my 1099 for 2010. His bookkeeper males to check a week later and I receive it in mid-January 2011.

So that's the problem. His 1099 for 2010 is $1500 higher than I actually received from him in 2010. I operate on a cash basis so I'm not only allowed but arguably required to report income depending on when I received it, not just based on the date he puts on his check. And I don't want to have to pay tax on an extra $1500 a year early, either. But I also don't want to get the IRS confused. As a result, I think I'll use the method described above by TaxMama, although I disagree with her that "if you do all your bookkeeping throughout the year, you probably won't need to worry about the discrepancy." Yes, you will! Use your own bookkeeping and the IRS will notice the discrepancy and you will probably have paperwork to do corresponding with them, if not an audit. Use the 1099 instead of your bookkeeping, and you may be breaking the law and/or paying tax on income a year earlier than you have to.

Personally, I'm going to ask the payer not to cut any checks after December 15 anymore – he can keep the money an extra two weeks to save us both some headaches.

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answered 04 Jun '12, 00:05

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Asked: 13 Nov '09, 06:26

Seen: 7,263 times

Last updated: 04 Jun '12, 00:05