Understanding constructive receipt of income under cash basis
The accounting method you choose impacts when you deduct expenses and recognize income. Most individuals and small businesses use the cash basis method, where income is recognized when received and expenses are recorded when paid. This means income isn’t taxable until money is actually received, and expenses aren’t deductible until they’re paid out.
Payments received subject to restrictions by the payer may not be taxable income until those restrictions are lifted, depending on whether the recipient has full control over the funds upon receipt. Each taxpayer should evaluate their specific circumstances to determine the correct taxable year for such income.
For help in determining your taxable income, contact a ShindelRock tax professional.