When to claim check dated in one year but received the next

The problem with choice 1 is that they will likely issue a 1099 for 2023 and so it might look to the IRS like I neglected to claim it. But if I choose choice 2, am I then not being honest about my 2024 earnings, when my bank shows a deposit that isn't claimed?

5 Answers 5

When you deposited the check is not important. Because if that was true and you knew the tax rates were going down significantly in January you could hold all your December checks and maybe even your November checks until January.

What is important is when you had access to the money, and in the case of the check when you could have deposited the funds. Keep the envelope to show the postmark, and note when it was received.

The problem with 1 [claim it when you received it] is that they will likely issue a 1099 for 2023 and so it might look to the IRS like I neglected to claim it.

It is possible that they mailed it in plenty of time, but the mail didn't get it to you as fast as they planned. That is why you document when it was received.

It may or may not work at audit (keeping the postmark to prove it was backdated), but if it was mailed in 2023 then I believe you're in the wrong with this advice.

I'd be more confident in this answer with a reference or two. "Taxable events" is what matters. Is receiving a check a taxable event, or depositing it, or something else? For general sales, I'm under the impression that it's a little loose, not exact.

@user26460 the argument here is between "receiving it" and "it being sent", definitely not "depositing it" since that is entirely under the OP's control.

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 year and received in another does not make the check taxable in the year issued. See McEuen v. Commissioner, 196 F.2d 127, 130 (5th Cir. 1952). Checks sent through the mail 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.

A taxpayer should report income in the correct taxable year even if that conflicts with information on a Form 1099.

The document is a letter from a Christopher F. Kane, Branch Chief, Branch 3, (Income Tax & Accounting) with the material identifying the recipient redacted.

My emphasis in bold is added. Branch Chief Kane establishes the basis of the question (something to do with an annuity), then gives the standard quote from Publication 538 given in other answers. He then wrote the above quote.

Note that in it he comes as close as one can to stating that a check IN the mail (my emphasis) is not constructively received until. received and adds mention that if one had the option of receiving it by direct deposit during the earlier year, then it would have been constructively received.

Hence, unless there was that option (and he does not go into far-fetched options like driving somewhere to pick up the check), the income was constructively received in the latter year. In addition to not even bothering with mentioning driving to physically pick up the check, he does not bother addressing whether one has a duty to ask for direct deposit of the check rather than taking whatever normal business practice choice the vendor makes.

I grant that he is answering a question whose context is an annuity and therefore almost certainly a large company making the payment and therefore almost certainly at least the good chance direct deposit was available, and so mentioning that mechanism for physically receiving the money before the year was physically over (versus such things as driving somewhere, possibly even whole states away).

That leads to the limb I shall go out on, that of suggesting that any audit (which did not turn up outright fraud or fakery thereby tainting any explanation of any point raised with the thought that said explanation had a good chance of being further lies) would probably rely upon a "facts on the ground" approach. Read any of the IRS audit manuals for auditors (available on their website if you root about for a while) or go through some audits and you'll see they are pretty reasonable in their approach and "factfinding." The limb then, is that I don't believe you'd be held somehow at fault for not asking if you could "drive over" and pick the check up, or that you'd be held to have constructively received the money simply because you never even asked the payor and so maybe you could have driven over.

Also, remember the last line from the extracted quote above, that of reporting in the correct year even if in conflict with an issued 1099. This is the instruction of a practical set of people, not a set of purists for whom nothing in life is permitted to be "messy."

Once a check is physically in the mail, you have no practical or legal access to or control over the check.

However, I will say that if you have collected payments from that payor in the past by physically showing up and taking possession of a check, etc., then probably you should declare it as the earlier year's income. The defining idea in saying so would be that your, and their, normal range of practice defines whether the mailing was an election you made attempting/hoping to shift the income, or was just part of normal business practice for the pair of you.