Income Declaration for December Payment

[surfer67]

It now appears that the December payment will arrive in January due to the holiday delay.

What I'd like to know is, since this payment will arrive in January, should this income be declared for 2005 or 2006?

[rookiecrd1]

I'm pretty sure, that income is reported in the year in which it is earned. Since it was earned this year it is to be reported this year. Not 100% positive though

[hunderdown]

If you're in the US, and receive a 1099 from Google, just go by the numbers in it. In the US, you can report income of that type either by when it was earned or by when you receive payment. Most report income by when they received payment (I do--so money earned in December and paid in January will be in my 2006 income).

But a payment that Google ISSUED in December would be considered to be 2005 income, following that approach.

If a lot of money is involved, talk to a tax preparer or an accountant. Otherwise, again for the US, there is a ton of information available from the IRS.

[LifeinAsia]

(NOTE: my comments are based on U.S. tax laws.)
It all depends on what type of accounting you use for income/expenses- cash or accrual.

If you are a cash-based entity, you report income when "constructively received." In most cases, this is when you receive a check or cash (even if you're lazy and don't put it in the bank until months later). If you receive the check on Dec. 31, but you don't actually check your mail untilk after the banks close? Well it's still considered 2005 income.

If you are an accrual-based entity, you report income when "constructively earned." This usually means that you have completed the work. So if you are an accrual-based entity, your AdSense revenue for December (as well as your November revenue) should also be included in income for 2005, even though you don't get paid for it until Jan. 2006.

As pointed out before, you should go by the 1099 that Google sends you (if any). If you report less than what Google reports, it will raise a big red flag and probably trigger a letter form the IRS.

What if Google's 1099 doesn't match what you should report? No matter what, you should report the same amount as on Google's 1099 (unless it's wrong- then you should contact Google to issue a corrected 1099). Add/subtract any discrepancy (like not actually getting the check until 2006) on another line.

[elfred]

Where I live, there are only two cases:
1) you pay taxes depending on when you actually cash the money
2) you pay taxes depending on when you actually worked to earn that money.
As a freelance consultant, if I get paid on january, 1st for something I did the year before, I will pay taxes in 2007. As a LLC I would pay taxes in 2006.