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Thread poster: aiaiushi
Include money you haven't received yet on tax return (U.S)?
aiaiushi
United States
Local time: 13:09
Japanese
Apr 14, 2010

One of the translation company (pretty famous) haven't paid me even though I submitted POs successfully and are 45 days past due (Yes, I am e-mailing them crazy though it is not working AT ALL...).

And here is a question. For example, if some translation companies wouldn't pay me before Dec 31, 2010 but PO date is before the year 2011, do I need to include those money on 2010 Tax Return? Even though you don't see those money yet? Thanks!


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Jeff Whittaker  Identity Verified
United States
Local time: 13:09
Member (2002)
Spanish to English
+ ...
Tax returns Apr 14, 2010

It depends on the date the check is written because that is the date (and year) the agency will use for tax purposes. For example, if they send you a check on December 30, 2010 and you receive it on January 3, 2011, the agency will add that money to your 2010 1099-form and it goes on your 2010 tax return. In other words, if you have any outstanding payments at the end of the year, you have to wait a few weeks before filing any returns in order to see if you receive any checks (or wait until you receive your 1099-forms). Since most agencies pay in 30 days, it basically means that our fiscal year runs from December to November rather than from January to December.

See this site for more advice:

http://www.johnmatthews.us/Tax%20Tips%20for%20Translators.htm



megumi203 wrote:

One of the translation company (pretty famous) haven't paid me even though I submitted POs successfully and are 45 days past due (Yes, I am e-mailing them crazy though it is not working AT ALL...).

And here is a question. For example, if some translation companies wouldn't pay me before Dec 31, 2010 but PO date is before the year 2011, do I need to include those money on 2010 Tax Return? Even though you don't see those money yet? Thanks!


[Edited at 2010-04-14 13:31 GMT]


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Katalin Horváth McClure  Identity Verified
Local time: 13:09
Member (2002)
English to Hungarian
+ ...
Depends on your accounting method Apr 14, 2010

Most self-employed freelancers run their business using the "cash" based accounting method (as opposed to the "accrual" method). That means you recognize the revenue when you actually get the payment (not when you issue the invoice).
Sometimes it gets tricky at the end of the year, especially when the agency cuts the check just before Dec 31 (to be able to expense it in that tax year), but you don't actually get the check and cash it before the first week of January.
If you have such cases, it is very likely that the agency will include that amount on your 1099 for the year that just ended, so you better include that on your tax return for that year as well. You can always wait for the 1099, and reconcile it against your records.
If you do not get a 1099 from the client (for example because the total payments from that client throughout the year do not reach the 1099 reporting minimum, or the client is abroad) than you may be able to include the payment for the year when you actually received it.
Just to be sure, you should ask your tax advisor.


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Janet Rubin  Identity Verified
Australia
Member (2008)
German to English
Cash basis Apr 14, 2010

I am not an accountant, but as I understand cash basis accounting, income is credited when received, not when someone writes a check.

If a company prints out a check on 12/29 but due to holiday mail, you receive it on 1/2, you would record it as income for the new year. However, if the company mails a check on 12/24, you receive it on 12/31 but don't deposit it, you technically have received it in the old year and are supposed to record it as income then.

Here is one link pulled up at random:
http://www.rothcpa.com/archives/cat_2009_yearend_planning.php

"If you're a cash-basis taxpayer - if you aren't sure, check your business tax return or your 1040 schedule C or schedule F - you will need to show that you spent the money to claim the expense this year. Some things to remember:

If you mail a check for a business expense, the check needs to be in the mail and postmarked in 2009 to be a deductible 2009 expense. If it's a big check, maybe you should spend a few bucks extra to send it Certified Mail so you can document the postmark.

If you receive a check in the mail, it's taxable the day you receive it, even if you don't deposit it."


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Katalin Horváth McClure  Identity Verified
Local time: 13:09
Member (2002)
English to Hungarian
+ ...
That's why I think it is safer to go with the mailing date Apr 14, 2010

I think it is difficult to prove when you received a piece of snail mail, unless it is certified.
So, if the check was mailed let's say on Dec 30, 2009, depending where you live, you may get it on Dec 31, 2009, or as late as Jan 5, 2010. Either way, I think it is safer to include that in the 2009 tax return, because the issuing party will certainly include it for 2009 at their end, and I think it can raise a red flag for auditing if there is such a mismatch.
It is difficult to prove when the mail was received. Although, I don't think it would be hard to explain, but who wants to do the explanation at an audit?
Again, I think looking at the 1099 you get from the company, and matching your records to that is a safe bet.
But again, if you have a doubtful case, asking your accountant is the best way.
Katalin


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Janet Rubin  Identity Verified
Australia
Member (2008)
German to English
Being safe Apr 14, 2010

Even the taxman knows it takes time for checks to arrive in the mail. If a mailed check is dated 12/31 and you count it as income 12/31, that looks funny too.

But the rule is there - account for when received. If someone feels "safer" with another method ("issue date") or simply unsure with their own choice, I agree that an accountant would be the best place to get precise advice - and place blame.


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Yolanda Broad  Identity Verified
United States
Local time: 13:09
Member (2000)
French to English
+ ...

MODERATOR
Check to see if the payer reported payment for the previous year Apr 14, 2010

One US agency in particular I have worked for in the past uses the tactic of issuing checks at the end of December, but not mailing them until the following year. I assume this allows them to write off the payment for the earlier year, while ensuring that the money isn't actually disbursed until the following year. If the payer reports payment on the W-9 to the IRS for the earlier year, you have to count it as income for that year, or your statement won't match theirs.

Of course, if payment comes from abroad or is below the W-9 reporting threshold, there will be no separate statement to the IRS. In that case, I use the postmark date, if it's a check. For a bank transfer, I use the date it's deposited in my account, and the same goes for PayPal payments.


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Janet Rubin  Identity Verified
Australia
Member (2008)
German to English
Various sources of income and flags Apr 14, 2010

There's one other thing to keep in mind, and that is if you are (for example) a cash-basis freelancer filling out a Schedule C in the US, you are not filling out a line-item record of your income but a total of all income received from your business activities, from all of your clients.

In other words, if TransCompany claims to have paid me $Y,YYY in 2009, there is nowhere for me to report $Y,YYY as part of my total income $XX,XXX on my tax return.

The only time the IRS might try to "match" numbers is if they audit me and ask me to provide the 1099s* I received. If I were unfortunate enough to get to that stage, at least I would have ample opportunity to pull out my records and show that a check was issued at the very end of December and explain that it was received in January and accounted for in 2010.

But since there is nowhere to report a specific number from TransCompany on my tax return, there is no way a "mismatch" could throw up a red flag.

*[1099, not W-9]

- - - - -

For what it's worth, I asked an accountant in the family what she thought, and she agreed that if you are filing a personal tax return and are consistent in your actions, it is perfectly appropriate to report the income when you receive the check.


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Jack Doughty  Identity Verified
United Kingdom
Local time: 17:09
Member (2000)
Russian to English
+ ...
Similar problem with EU tax returns Apr 14, 2010

About two years ago a rule was introduced forcing you to declare as income for the tax year sums for which you have invoiced but which were not paid by the end of the tax year (April 5th in UK). I report the sums concerned separately to my accountant under the heading "Invoiced But Not Paid". Of course, you don't have to declare them again the following tax year. But for me, last year they included an amount of GBP275 which was never paid and which I have written off as a bad debt. So I, working on my tax return at the time of writing this, am hoping to get a refund of the tax on that sum.
The whole idea seems ridiculous to me. Why couldn't they continue taxing you on what you actually earn? It was much simpler that way!


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aiaiushi
United States
Local time: 13:09
Japanese
TOPIC STARTER
thank you for answering my question. Apr 14, 2010

Thank you all for answering me. My mind is getting more clear now. What Mr. Doughty is stating is interesting. I wish I could claim as "Invoiced But Not Paid", then it'd be easier but at the same time there's a possibility you'd end up not getting paid... Terms of payment also tricks me if the term overlaps the year.

I will have to ask accountants about this matter for sure but I haven't found the right accountant who is an expert for translators...


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Enrique Cavalitto
Local time: 14:09
SITE STAFF
Please consider contributing to the relevant wiki page Apr 14, 2010

As a way of collecting valuable information as a community on this issue, and to give it permanence in time, it would be nice if you could consider posting on this issue in the wiki page Tax issues for freelancers.

Please add content and to edit that page. A common repository of information on this important issue will be another contribution to achieve the goals defined at http://www.proz.com/about/ipetition/

Regards,
Enrique


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Include money you haven't received yet on tax return (U.S)?







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