Here it is, the last few days of 2003, and, like many people, Mr. Athena and I are looking to reduce our tax burden. Regarding checks, how does the following work?
I receive a check for some consulting work I performed. The check is dated 12/23/03, but I don’t deposit it until 1/2/2004. Can I claim it next year instead of this year?
Same thing in reverse:
I write a check to pay for a property tax bill. I write it on 12/29/03 and put it in the mail. It’s not cashed until 1/5/04. Do I get to claim the tax deduction for this year?
I suspect the answer to both of these is “yes” but just checking to make sure. Yes, I know I can ask my accountant, and I will when I get my tax stuff together for him. I just wanna know what the teeming millions say.
If you write a check, it’s counted according to the date in the checkbook. It doesn’t matter when the check is cashed, since you have no control over it. You could write a check in November, but you shouldn’t be penalized because the recipient doesn’t go to the bank.
Similarly, the money is considered yours when the check is deposited, so if you hold the deposit until after the 1st, it’s part of the new year. Ultimately, the IRS will want to see the bank record as the official date of deposit.
Unless there is something very suspicious about the timing (say, the check is for a bill that could only be sent to you in 2004 – your February phone bill, for instance), the IRS is not going to press the issue.
This is the IRS we’re talking about. Think they haven’t seen this kind o thing before? I would refer readers to the Doctrine of Constructive Receipt (a BASIC income taxation principle). Most of us are cash basis taxpayers, meaning we report income and pay taxes on that income only if it is received during the taxable year.
Federal Income Tax Regs state that even though income is not actualy reduced to a taxpayer’s possession, the taxpayer is deemed to have constructively received it in the taxable yearduring which (1) it is credited to the taxpayer’s account **(2) set apart for the taxpayer, ** or (3) otherwise made available to be drawn from at any time.
The purpose of the doctrine of constructive receipt rules is to prevent taxpayers from unilaterally determining the tax year when an item of income is “received” by them for Federal tax purposes.
Answer #1: No. The money was set aside for you and a check was drafted for you on 12/23/03. It belongs in the 2003 tax year.
Answer #2: Depends on whether or not you are paying property taxes for 2003 or 2004–your billing statement should make it pretty clear.
You can actually do it either way.
This I know from working as a temporary tax preparer in the peak season.
Accounting is not an exact science, and you won’t be faulted as long as it’s recorded somewhere.
The tax code is a lot more flexible than it appears on the forms.
In fact, even the forms can be varied if you supply all the correct information. Most big firms use coputer packages that have form variants.