Taxpayer asks:
Thanks taxgirl for helping me out on this one! I have a couple of different ad and affiliate accounts for my blog. When I earn money, they bank it until I hit a certain dollar amount and then they make a deposit into my PayPal account. A few of them accumulated earnings in late 2009 but did not hit my PayPal account until 2010. Do I report those earnings when I earned them or when they were deposited?
Taxgirl says:
That’s a great question!
Most individual taxpayers are cash-based taxpayers. This means, generally, that you report income when received and expenses when paid. “Received” can be a tricky concept in today’s internet world since it’s not a simple matter of cutting a paycheck. Clearly, if someone gives you a check and you have the check in hand, it’s received. But if the same check is put in your in bin at work and you choose not to cash it, it’s still income to you. The general rule is that it’s income when it’s made available to you – and that extends to third party payers or internet payments.
I know exactly the situation you’re describing. I have the same arrangement through a syndication service. I get paid when my “royalties” hit a certain amount; my Kindle subscriptions work the same way. That money isn’t income until you can actually take it. If you “earn” $20 but have no right to receive it until you reach $25, then the income has not been made available to you. It’s not actually available to you until it’s deposited to your PayPal account.
There is a caveat: if the fact that the income wasn’t available was due to something you did (i.e. you made a deal that you didn’t want to be paid until you made $100), then it’s actually available when you could have taken it – even if you didn’t. You can’t simply defer income because it’s convenient for you or because you don’t want to pay tax on it.
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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Hmmmm… exactly what my tax guy said too… but I’m not surprised… I know you can’t give comprehensive advice over the ‘net but you do know your stuff.
Aww, thanks Anne!
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