Posted by eXpedN_TX on 1/19/06 10:10am
Msg #89415
Yes, another tax question
I have read and read the different scenarios on the irs.gov web site http://www.irs.gov/publications/p334/ch02.html and have also read the threads about this here at notrot, but am still confused about something. I was hoping someone could give me a somewhat "easy" answer.
Question: I haven't been paid for two signings I performed in late December 2005, as of yet. My accounting preference is the "Cash Method". Therefore, when I do get paid, the checks are going to be cut in 2006. Can I still claim it with my 2005 tax return this year?
On the IRS website I saw the example: "On December 30, 2004, Mrs. Sycamore sent you a check for interior decorating services you provided to her. You received the check on January 2, 2005. You must include the amount of the check in income for 2005. "
However, the above example shows the check getting cut in the same year. So I am confused with what happens if the check does not get cut until the year after?!?!?
Can anyone help me on this one?
Thanks so much for your help!!! Sincerely, Confused.
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Reply by Charm_AL on 1/19/06 10:14am
Msg #89419
I believe any monies received as of Jan 01, 2006 get taxed for this year. I stop all accounting on Dec. 31st for 2005. Even if they wrote it in 05, if I receive it in 06, it counts for 06's income.
I hope I'm right on this! 
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Reply by eXpedN_TX on 1/19/06 10:18am
Msg #89427
Thanks Charm, I think in the Cash Method you are supposed to claim it in 2005, even if you get the check in 2006. I am just not sure what happens if the check is made out in 2006. My guess would be the company that hires you won't process the claim until 2006 either, so you wait until then, but I can't find any wording to back me up on that?!?!? The link I provided in my first message is very informative, just not with the "date" on the checks. And as you know, we SA's have to follow strict guidelines on "dated" materials. ;)
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Reply by Charm_AL on 1/19/06 10:20am
Msg #89431
Re: Yes, another tax question..Where's PAW???...n/m
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Reply by eXpedN_TX on 1/19/06 10:21am
Msg #89432
PAW, help?!?!? n/m
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Reply by PAW_Fl on 1/19/06 10:24am
Msg #89434
Okay, I'm here ...
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Reply by eXpedN_TX on 1/19/06 10:27am
Msg #89438
Re: Okay, I'm here ...
Excellent... Any ideas on my post #89415? - Melissa
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Reply by PAW_Fl on 1/19/06 10:28am
Msg #89441
Re: Okay, I'm here ... again
Maybe if I push the right buttons I can do this right!!
When using the "cash method" of accounting, it makes no difference when the check is cut or printed. Only when you physically receive the money in hand. Therefore, if you did a job on 12/30/05 and the check is dated 12/31/05 but you did not receive it until 1/2/06, it is income for 2006, not 2005. Actually, my accountant told me that if I used the cash method, I should use the deposit date of the check into my account or the date I "cashed" it. It makes for better flow with records.
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Reply by eXpedN_TX on 1/19/06 10:32am
Msg #89446
Thanks PAW!!!
The example: "On December 30, 2004, Mrs. Sycamore sent you a check for interior decorating services you provided to her. You received the check on January 2, 2005. You must include the amount of the check in income for 2005. " threw me off.
I am going to add the checks to my 2006 expenses, then. Thanks again.
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Reply by Anonymous on 1/19/06 11:08am
Msg #89472
Re: Thanks PAW!!!
You need to read more carefully. Why would you reason from that example that you would ever claim the income in the year the check is cut is beyond me. That example clearly states the service was provided in 2004, you received payment in 2005, the income counts as 2005 income. I think you might be messed up because the dates in the example are 2004 and 2005, then you read the last sentence and it says 2005, and you are thinking 2005 and 2006.
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Reply by eXpedN_TX on 1/19/06 11:20am
Msg #89486
Anonymous....
Thanks Anonymous. I don't think I confused the years. Also, it's not a question of "when " I receive payment. The question I had, was the check "cut" date. The IRS says that if you receive a check after the new year, you still claim it in the year before. The example they used was 2004 and check dated 2004, received in 2005. I understand that. My concern was, if the check you get is also "dated" for the new year. The answers I recieved in this post are the way the other SA's do their business and some with help from their CPA's. They have more experience, so I choose to listen to their advice. Maybe I posted my initial question incorrectly and "messed" you up instead?!?! Hope this clarifies it.
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Reply by Anonymous on 1/19/06 11:28am
Msg #89500
Re: Anonymous....
"The IRS says that if you receive a check after the new year, you still claim it in the year before"
Not if you are using the cash method which you say you are, and I don't think you really understand what the other more experienced SA's are saying about doing taxes using the cash method.
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Reply by eXpedN_TX on 1/19/06 11:33am
Msg #89512
Re: Anonymous....
Thanks for your enlightening words. I agree that the IRS says that if you receive a check after the new year you still claim it in the year before. Can you tell me where the link is that says if a check is "cut" and or "dated" in the new year you claim it the year before?
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Reply by Anonymous on 1/19/06 11:42am
Msg #89524
Re: Anonymous....
Okay, this is a quote from your post.
"The IRS says that if you receive a check after the new year, you still claim it in the year before"
I totally disagree with this statement, if you are using the cash method. In the cash method of accounting, when a check is cut or sent to you does not matter. The only thing that matters is when you receive payment. If you did a closing in 2005 and get paid in 2006, that check is recorded as 2006 income. It does not matter if the check is dated 2005 or 2006. It does not matter if that payment makes the SS's 1099. I implore you, before you respond relax and think this thru.
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Reply by eXpedN_TX on 1/19/06 11:55am
Msg #89548
Re: Anonymous....
I see. Can you link me to where the IRS states this please? Thanks for your help.
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Reply by Anonymous on 1/19/06 12:27pm
Msg #89569
Re: Anonymous....
Here is an IRS link.
http://www.irs.gov/businesses/small/article/0,,id=105694,00.html
here is another
http://www.irs.gov/publications/p538/ar02.html#d0e1685
Here is what PAW posted.
"When using the "cash method" of accounting, it makes no difference when the check is cut or printed. Only when you physically receive the money in hand. Therefore, if you did a job on 12/30/05 and the check is dated 12/31/05 but you did not receive it until 1/2/06, it is income for 2006, not 2005. Actually, my accountant told me that if I used the cash method, I should use the deposit date of the check into my account or the date I "cashed" it. It makes for better flow with records."
Here is what Charm posted.
"I believe any monies received as of Jan 01, 2006 get taxed for this year. I stop all accounting on Dec. 31st for 2005. Even if they wrote it in 05, if I receive it in 06, it counts for 06's income."
Here is what cmd_NH posted.
"Cash Method = Income is recorded when received, expenses recorded when paid."
Here is what cyndi_ca posted.
"I believe Charm is correct. I'm sure Rhonda hates that. I asked my tax lady and gave me the very same answer"
Here is what thenotary_NY posted.
"Never mind what the date is on the check Under the cash method, income is reported when the taxpayer actually or constructively receives the income. Constructive, meaning when an amount is credited to the taxpayer's account or made available to the taxpayer without restriction."
Yet you insist that you are taking the advice of all the more experienced notaries who have posted and you totally agree with this statement quoted from your post. If you are taking the advice of all these other signing agents you can't possibly mean the quote from a previous post of yours.
"I agree that the IRS says that if you receive a check after the new year you still claim it in the year before."
Seriously, I didn't want to argue with you, and I am trying to help. Everyone has said that the date on the check does not matter. All that matters as far as income is concerned in the cash method is when you receive the check.
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Reply by eXpedN_TX on 1/19/06 1:29pm
Msg #89591
Re: Anonymous....
Thanks. I just got back from having lunch a realized that part of what you and I were saying were the same, what I typed was a BIG FAT Typo!!! I understand and meant to type that if you get a check dated in one year and receive it the next year you file it the new year. I kept typing the year before. My bad. Also, I hate to admit this, but must, when I saw the Anoymous post and read the "Messed" up portion, I thought someone was payying with me, so I wasn't really paying close attention tp what was being posted. I thought more of those that actually took a "handle". Now that I look back, I realize that you are one of those few anonymous posters that actaully has something to say worth reading. I apologize for the misunderstanding. Thanks again for your help.
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Reply by Anonymous on 1/19/06 1:38pm
Msg #89597
Re: Anonymous....
A BIG FAT typo makes perfect sense. Sorry for the anonymous, maybe next time I will argue under a "handle".
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Reply by eXpedN_TX on 1/19/06 2:04pm
Msg #89615
Re: Anonymous....
No problem. I should have much more carfeul with my judgement. I can see you are a good person!!!
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Reply by cmd_NH on 1/19/06 10:28am
Msg #89442
Re: I am not PAW, but.....
Cash Method = Income is recorded when received, expenses recorded when paid.
Accrual Method = Income is recorded when the job is invoiced, expenses recorded when the bill is received.
So in answer to your question. If you are using the cash method and you did a signing in 2005, but did not receive payment until 2006, it is counted as 2006 income.
I hope this helps you. If you would like to email me with any questions, I would be glad to help you if I can. [e-mail address]
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Reply by eXpedN_TX on 1/19/06 10:35am
Msg #89452
Thanks cmd-NH!!!
I am going to claim those two checks for 2006 when I receive them. I also really appreciate your offer for help. I will probably be contacting you. I like to do my taxes myself and have learned a lot, but since I began this business this past year, I have some little quirky things I want to find out. For the most part I know which forms I need and the info. is all there to read. Sometimes what I read can be taken in more than one way, that's when I can use the guidance.
Thank you so much!!! - Melissa
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Reply by cmd_NH on 1/19/06 10:45am
Msg #89461
Re: Thanks cmd-NH!!!
Anything I can do to help, Melissa. I am not a CPA, but I do have a bookkeeping and tax business for individual and small businesses. I have been preparing taxes for about 4 years now. Between myself and my husband I have 3 Schedule C's to do each year because of three separate businesses. I am not a know-all expert, but if I don't know the answer, I will do my darndest to find it.
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Reply by eXpedN_TX on 1/19/06 2:21pm
Msg #89624
Re: Thanks cmd-NH!!!
NH people are the best!!! I was born and raised in Hanover. Tee hee!!!
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Reply by PAW_Fl on 1/19/06 3:45pm
Msg #89642
Re: Thanks cmd-NH!!!
That explains a lot! (Probably went to Dartmouth too!)
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Reply by eXpedN_TX on 1/19/06 4:33pm
Msg #89674
Re: Thanks cmd-NH!!!
As a matter of fact, I took math classes there and played in the Dartmouth Symphony Orchestra. LOL!!!
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Reply by cyndi_ca on 1/19/06 10:55am
Msg #89468
I believe Charm is correct. I'm sure Rhonda hates that. I asked my tax lady and gave me the very same answer. LOL
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Reply by eXpedN_TX on 1/19/06 11:21am
Msg #89487
Thanks for checking with your CPA Cyndi_ca. n/m
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Reply by John_NorCal on 1/19/06 10:28am
Msg #89440
Re: Cash Method >> You claim money when it is received..
so you need to claim this in 2006 even though you performed work in 2005. This goes for your
expenses too. If you used accrual accounting, as some services do, then you would have claimed it against your 2005 income.
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Reply by Calnotary on 1/19/06 10:35am
Msg #89451
Re: Cash Method >> You claim money when it is received..
What about the SS sending you a 1099 with 5 signings you did on the 31 of Dec and you received
it till Jan 15, you use the cash method and you will report that income on 06 tax year but SS sent
out the irs a 1099 for 750.00 and you didnt report that.
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Reply by PAW_Fl on 1/19/06 10:41am
Msg #89458
Re: Cash Method >> You claim money when it is received..
It all comes out in the wash. There is not a 1-to-1 correlation with 1099's and income reported. Often the 1099 is wrong or you didn't even get one. It's YOUR records that the IRS looks at for validation and verification with what was reported.
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Reply by John_NorCal on 1/19/06 10:42am
Msg #89459
Re: Cash Method >> You claim money when it is received..
If I understand your question, you did 5 signings on Dec 31, obviously you were not paid on that date, the income would be received in 2006 and should be reported then. If the SS included that for 2005, they are wrong and should correct that. That may or may not have a measureable effect on your taxes depending on how much you made last year, so you might want to pursue this. Remember, the reporting date for 1099's is Feb 28th, not Jan 31st, so they have time to correct this.
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Reply by Cherilyn_CO on 1/19/06 11:43am
Msg #89526
It's not wrong...to them
It's totally correct on their end if they use the accrual method of accounting. They incurred the expense in 2005. They don't have to change anything.
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Reply by thnotary_NY on 1/19/06 10:31am
Msg #89444
Never mind what the date is on the check Under the cash method, income is reported when the taxpayer actually or constructively receives the income. Constructive, meaning when an amount is credited to the taxpayer's account or made available to the taxpayer without restriction.
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Reply by eXpedN_TX on 1/19/06 10:38am
Msg #89456
I am going to wait to receive the 1099's, but in the case I don't get one and I receive a check dated for 2006 in 2006, I am going to stick with my plan of claiming it in 2006. You guys are so helpful. Let me know if I can return the favor!!!
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Reply by thnotary_NY on 1/19/06 11:58am
Msg #89553
If you know what you made in 2005, don't wait for 1099s, you may have a long, long wait. If you made less than 600 with any one outfit, you probalbly wont get one. That does not exclude you from reporting the income.
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Reply by Cherilyn_CO on 1/19/06 11:39am
Msg #89522
Cash vs Accrual Method of Accounting...
In a nutshell, Cash=record expenses and income when you GET or SPEND the cash. Meaning, when you get the cash in your hands or pay for something.
Accrual=you record income and expenses when EARNED or INCURRED. For example, I did a signing on 12/31. I earned that $ on 12/31 even though I'm not going to get the $ until 2006. I bought a printer on ebay on 12/31. I incurred that expense on 12/31 even though I may not pay for it until 2006. With the accrual method, you record liabilities and accounts receivable, with the cash method, you don't. You only record income and expenses.
I suspect most people use cash in this business. I have a hard time going back and forth as I use cash basis for my notary business, cash basis for my husband's stucco business, but accrual basis at work. Sometimes, I don't know if I'm coming or going!
Cherilyn the Accountant
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Reply by srnotary_CA on 1/19/06 11:41am
Msg #89523
Too confusing H&R Block here I come....n/m
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Reply by Cherilyn_CO on 1/19/06 11:45am
Msg #89531
Honestly...I'd go to a CPA
H&R Block is good for normal returns, but don't do to well with SE. You'll pay more, but your CPA will find deductions H&R block won't.
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Reply by Anonymous on 1/19/06 11:49am
Msg #89543
Re: Honestly...I'd go to a CPA
I don't think it's that confussing. But if you don't understand it, or don't want to understand it, then go to a CPA. At H&R Block you may get someone that has had about 30 hours of classes doing your taxes. You will pay more for a CPA but like Cherilyn said, they will probably find more in deductions.
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Reply by srnotary_CA on 1/19/06 11:55am
Msg #89549
Re: Honestly...I'd go to a CPA
I am trying to learn but sometimes it just gets jumbled. Was joking with the H&R Block thing. There commercial popped into my head when I was reading this and just thought i would comment. You Know if we make a mistake we pay your fines...
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Reply by Anonymous on 1/19/06 12:42pm
Msg #89574
Re: Honestly...I'd go to a CPA
I took a class at HRB one year to learn taxes. In my class were 4 girls who worked for CPA's who were being required to take the course so they could do the taxes so their bosses would not have to. They thought it was funny, how people were going to pay $300-$400 to get their taxes done by a secretary instead of the CPA they thought was doing them. LOL
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Reply by srnotary_CA on 1/19/06 12:49pm
Msg #89576
Re: Honestly...I'd go to a CPA
OMG that is so bad.
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