Year End business income & 1099s Tax year ?

According to IRS instructions, Schedule C businesses who use a CASH method should include revenue on their tax returns based on when the money is received. Near the end of the year payments may be received in the next year, while these payments are included in the prior year's 1099s. E.g. You receive a check (dated in Dec) Jan 3rd 2013 from a customer, you then receive a Y2012-1099 from that customer in Feb 2013 that includes the January check amount. The rules say that you should NOT include that check on your Y2012 return, however, my opinion is that it is generally better to include it in Y2012 especially if not doing so will make your total Sched-C gross income less than what your Y2012

1099s add up to. My reason for this opinion is that I believe that if your 1099s add to more than your what your business declared as Gross Income you may be flagged even though the instructions say it is OK (most people would rather not have the aggravation even though things will be resolved in their favor in the end).

Is this true, or are my concerns baseless? Has anyone seen clients get a letter from the IRS regarding missing

1099 business income based on a single year's return?
Reply to
Thunderbird
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"Thunderbird" wrote

If you've got one "customer" there may be timing issues related to when the money is received and when it's paid by their employer. I've seen this very rarely, but when it has happened, we've noted the amount reported differs due to $X amount received in the days following 12-31.

If the business is a business with multiple customers, and when some of those customers don't report on a 1099, then timing issues are moot because you're reporting all the money received regardless of if it's reported or not.

Reply to
paulthomascpa

This has happened to me multiple times personally with regard to rental income (schedule E), and responding to the IRS has been simple and straightforward, with just a statement as to the facts (although I do retain copies of the pertinent check and envelope with the cancellation mark, if it has one, I've never been asked for this)

According to an IRS representative (an auditor at some office, not the regular IRS help line), one way of handling this so as to avoid a letter would have been to report the entire amount as income, and then "expense" the amount that was received in the subsequent year (I think as "other" with an explanation). Perhaps something similar would work on Schedule C.

I've never used the IRS offered solution as I have needed the lower amount on the Schedule E income line due to state tax considerations, but I might if that were not an issue.

Reply to
Ron Rosenfeld

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