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Ask the taxgirl: Timing of payments

by Kelly on April 6th, 2008

Taxpayer asks:
Hi Kelly!

I’m so glad to have found your site - what a great service for all of us! My question is in regards to the 1099-MISC form. I am a small business owner and received a 1099 form for a December 2007 sale however the company did not pay until January 2008. Do I report that as income for 2007 (even though I did not receive any funds until 2008?).

Thanks so much for your help - going to be checking out your site all the time now!!

Taxgirl says:

Thanks for the nice words, I’m glad that you enjoy my site.

As to your question, it’s tricky.

You should only report income actually received (or constructively received) in 2007 on your 2007 form 1040. It’s tricky because I’m guessing the company that issued the 1099-MISC wanted to take advantage of the deduction in 2007. If they actually paid you in 2008, however, the 1099-MISC is just plain wrong.

My advice to you depends on two things - how much the payment is and what kind of relationship you want to have with the company that issued the payment.

If the amount is small enough, I’d let it go and report it on the 2007 return. This way, everybody’s happy.

However, if it’s a significant amount, you’d want to take advantage of the tax deferral. I would contact the company that issued the 1099-MISC and, in the nicest way possible, ask them to issued a correct 1099-MISC.

If the payer will issue a new one, problem solved. If the payer refuses, then you should notify the IRS. Call 1-800-829-1040. Have your name, address, Social Security Number, and payment information and the name, address, and phone number of the payer handy when you call.

An alternative that I’ve heard bandied about when this happens is just to file anyway as you believe to be true. The problem with filing with the old 1099-MISC but not reporting until 2008 would be that the IRS will not have the correct information and will assume that you failed to report income in 2007. That, to me, just creates more problems than it solves.

I hope that helps. Thanks for reading!

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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