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Deposited all checks received since ~Thanksgiving, so will be taxed as 2017 not 2016 income.
Be sure you understand the “Doctrine of Constructive Receipt!”
That sounds like 2016 income to me.
https://www.irs.gov/publications/p538/ar02.html
You may well be right. However, a good accountant ought to know the rules and also the realities of how they are treated in practice. Mine is smart and experienced, and has advised me that this practice is common and benign. However, I will raise it with her again just to be sure. Thank you, WD!
Ok. I’m glad you will check with your accountant and appreciate my unsolicited advice. I think your mind and plan has already been made, but that is fine. I don’t want this forum to be a place to argue. For the sake of other readers though, I wanted to elaborate a bit. Doctors tend not to take accounting or business law so they don’t know things that are basic to other professionals. The IRS requires us to report our gross income. The 2016 gross income includes checks that were received in 2016. You could have deposited them and they were part of your gross income. That issue isn’t open to debate. It is federal law. Whether others comply or whether you would realistically get caught or whether it is worth a risk or whether a fine would be large or whether an auditor could prove it etc are all separate issues in my mind. My view is that I want to comply with all laws both in letter and in spirit. If it is black and white I don’t consult experts no matter how smart and experienced they are. Ultimately, my name will go on the 1040 form. I do think an experienced CPA can be helpful in gray areas that can be interpreted differently. I just don’t think the definition of gross income is one of those gray areas. Having said that there are legal ways to minimize federal income tax through income shifting/timing, etc. For example, if I go to a conference in November 2016 but I don’t submit my receipts for reimbursement until January 2017 that would be part of my 2017 gross. If I submitted them right away and received a reimbursement in December that would be 2016 gross income. The date of putting the funds into a bank account have nothing to do with the definition of gross income.
No, I have no wish to violate the law. I actually thought what I was doing was ok. And it was only when you were good enough to inform me of it that I heard of the concept of “Constructive Receipt”. Then, since I trust my accountant and rely on her representations, I wondered whether we had had a full enough discussion, and whether she had been telling me about the letter of the law or its interpretation. So I will talk to her about it. But let me ask you to make sure I understand — if I receive a check from a patient on December 31 2016, but deposit it on January 4 2017, that money counts as 2016 income? I always use my bank statement which documents deposits in the calendar year as the “official” record of revenue for the year.
That is technically more difficult, but what really matters is that you treat the same situation the same every year. They dont care at all in that situation. I say this from experience since I never get my December check until January, but my 1099 included it for the prior year. So now I count it as last years pay even though I receive it the next year, but I am consistent.
Your accountant will say there is no such thing as white or black, just lots and lots of grey. They seem to be pretty comfortable doing all kinds of things that my superficial understanding of things makes me not comfortable with.
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