Income and interest day?

By "today" you mean Jan 1, 2 or 3rd? But to the question, there is no downside to adding it to 2009 income.

ChEAr$, Harlan Lunsford, EA n LA

Oh, I thought this thread was about when a gift became completed.

So he wrote and mailed it 12/30/2009, and you received it 1/2/2010?

The downside is that the taxes on it will have to be paid for 2009 income; this might hit you with underpayment penalties (depending on which safe harbor you were planning on using) and the tax will have to be paid earlier (if it's 2010 income, at the earlies 4/15/2010 for estimated, possibly 4/15/2011 if you're in a safe harbor anyway). The upside is that it's taxable at your 2009 rates, safe from higher taxes in 2010 due to increased income or increased tax rates.

Seth

In article , snipped-for-privacy@panix.com (Seth) writes: | In article , Dan Lanciani wrote: | | >It's funny; I never had a significant issue like this before. But today | >I received a check dated 12/30 (envelope postmarked same) for a non-trivial | >amount. I'm sure it will be included on the 2009 1099-MISC. I really | >don't care one way or the other and I'd like to keep things simple. Is | >there a serious downside to including it in 2009 income? | | So he wrote and mailed it 12/30/2009, and you received it 1/2/2010?

Correct. (I think a machine rather than a he did it.)

| The downside is that the taxes on it will have to be paid for 2009 | income; this might hit you with underpayment penalties (depending on | which safe harbor you were planning on using) and the tax will have to | be paid earlier

That's not a problem. How about this for an obscure scenario, though? Three+ years from now when 2009 is closed but 2010 is open a detailed audit determines that it was indeed 2010 income because I had neither actual nor constructive receipt in 2009. It's too late to get a refund for 2009 but not too late to owe more tax for 2010. :)

Dan Lanciani ddl@danlan.*com

Well, there is such a thread somewhere.

The rules for deduction of expenses for a cash basis taxpayer are reasonably clear. As noted by others, the OP has interest income in

Just using that as an example without reference to any previous post. I'ts called Tax pro license, sort of like poetic license.

You're making up facts again, that have nothing to do with the hypothetical we are talking about. The hypo said,

"I receive a mortgage payment today not due until tomorrow,..." If he receives it he knows about it.

I suppose you could say that he's in the hospital in a coma because he drank too much celebrating the new year. But that has nothing to do with it.

Again, that has nothing to do with the hypothetical.

If that's what the lawyer said, he was largely wrong. There are many situations where the bank doesn't win. E.g. if someone forges your name to a check or an endorsement and your bank pays it, they have to pay you back.

In this case, the applicable provision of the UCC (at least California's version" says,

"A bank may charge against the account of a customer a check that is otherwise properly payable from the account, even though payment was made before the date of the check, unless the customer has given notice to the bank of the postdating describing the check with reasonable certainty."

As the original poster on this subject, I was surprised by the large number of responses. I am even more surprised by the disconnect between my questions and the responses. I will put it another way.

Does the tax code have anything to say about when the interest involved is deductible to the payer and when it becomes income to the mortgage holder? Does the code specify a unique way of handling the payment? What variations are allowed?

Bill

He knows he received a piece of paper that looks just like the valid check he received a month earlier. But until the bank tells him, he doesn't know that it _is_ a valid check. (Even if it is now, according to everything known, it might not still be by the time the bank opens in the new year.)

The hypothetical was that the borrower _appeared_ to give the lender a choice. We don't know that he actually did (unless he pulled out a wad of cash while asking).

Many years ago (when there was a "bulge" tax bracket), my then employer asked employees if we'd rather receive bonuses at the end of December or the beginning of January. That wasn't constructive receipt, because the employer wasn't constrained to follow the employee's wishes. It seems to me that's the same as the quoted situation; the borrower is asking for preferences.

"I'd prefer to get paid now."

"How much is that worth to you?"

Seth

What it looks like is irrelevant. Is it valid or is it not? He may not know until after the first of the next year, but that has nothing to do with whether he recognizes income.

If he gets a valid check it's actual receipt, not constructive receipt, even though as a practical matter he can't do anything with it at that time. If the check is not valid, it's not any kind of receipt, no matter when the check was issued and no matter when he received it.

So what? That was the question, not what all the possible permutations could be.

Actually most of the responses were directly applicable to your question, though you may have realized it because of the jargon and layers of complexity.

Bottom line, it depends whether the taxpayer involved is an accrual or cash basis tax payer. I'll assume cash basis, since most individuals and small companies function that way.

The payer gets to deduct money in the year when the check is either given or dropped in the mail. The receiver recognizes income when the check is actuallly received (all this assuming, of course, that the check is good).

That is the kind of reply I was looking for, assuming the advice is accurate.

So there is a concept of a check becoming active/valid.

Stu's answer is correct.