Constructive Receipt: When Is Income "Received" for Tax Purposes?
By Taxation Solutions, Inc. on 2015-11-30
It's nearly the end of the year, and that means you may be facing confusing questions about when income is being received. But, because most taxpayers are considered cash-basis taxpayers, the concept of constructive receipt can usually make the answer to this question pretty easy.
For cash-basis taxpayers, tax must be payed on income for the year they receive it. So, income received in 2015 should be included on your 2015 tax return. Crystal clear, right? Not so fast!
People often get confused when it comes to the end of the year. Say you receive a check dated December 31, 2015. You don't cash that check until January 1, 2016. So is the income taxable for 2015 or 2016? Constructive receipt says that the income was "received" in 2015 because it was available to you in that tax year, even though you didn't chose to deposit the check until 2016. Thus the income from the check should be reported on the 2015 tax return.
Taxation Solutions, Inc. is available to help you with issues of constructive receipt or other tax questions. Our goal is to ensure that you have the information and professional guidance you need to make the best possible tax decisions.