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Lev, Tax Advisor
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When using "Cash Basis" accounting, when do you consider an

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When using "Cash Basis" accounting, when do you consider an expense when you write a check? Is it when you write it, or mail it, or when it is cashed? The same question, but on the flip side when you receive a check? Is it considered revenue when you receive it or deposit it and it is credited on the bank account?


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A taxpayer “constructively receives” income when a payer makes it available so that the taxpayer can draw upon it at any time, or so that the taxpayer could have drawn upon it during the taxable year if he or she had given notice of intention to withdraw. [Section 1.451-2(a) of the Regulations]. However, income is not constructively received if the taxpayer’s control of its receipt is subject to a substantial restriction or limitation.

For cash basis taxpayer - when payment is made by the check - the payment is considered as made when the check is delivered to the payee and available for depositing.
Thus - if a check is delivered after the bank is closed - the payment is considered as made on the next business day.


Please see for reference -

Generally, we consider checks income to a cash method taxpayer in the year he or she receives them unless constructively received in an earlier year. See Lavery v.Commissioner , 158 F.2d 859 (7th Cir. 1946). The fact that a check is issued in one yearand received in another does not make the check taxable in the year issued.

SeeMcEuen v. Commissioner , 196 F.2d 127, 130 (5th Cir. 1952). Checks sent through themail are typically taken into income in the year the taxpayer actually receives them, unless the amounts are made available to the taxpayer in the earlier year. See Avery v.Commissioner , 292 U.S. 210 (1934); Rev. Rul. 76-3, 1976-1 C.B. 114; Rev. Rul. 73-99,Macro Form (Rev. 6/1999) Department of the Treasury - Internal Revenue Service 1973-1 C.B. 412. In other words, unless the taxpayer had access to or control over the check in the first year, no constructive receipt of the check occurred in the first year and the taxpayer should recognize the income in the second year when he or she actually received the check. However, if a taxpayer has the option of receiving payments by direct deposit instead of by checks sent through the mail, there may be constructive receipt of a payment on the earlier date that the direct deposit would have been made.

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