It basically depends on your accounting basis -- cash basis or accrual basis. When you file your first tax return, you have to decide it carefully, because you must use the same basis for the following tax filing. If you want to change the accounting basis, you must get approval from IRS.
Cash Basis:
- Cash, property or services received
- Constructive receipt (Amount readily determinable, no substantial limit on right to receive )
| Constructive receipt | Not Constructive receipt |
| Negotiable note, check (even after banking hour, even you didn't cashed or deposited) received, landlord’s prepayment of rent, Garnisheed wages (employer uses your wages to pay your debts), Debts paid for you(your debts are paid or canceled by others), Payment to third party ( a third party is paid from property you own) | Only promise to pay, Postpone cashed check, AMT to repay later, landlord’s damage deposit |
- Assignment of income: Income received by agent (employee) is same as received by the taxpayer (employer)。
Accrual Basis:
You generally report income when you earn it and deduct your expense when you incur them.
- Income paid in advance: an advance payment of income is generally included in gross income no matter you choose accrual basis or cash basis, like prepaid rent and interest.
However, Some may be deferred as exception: advance payment for goods and services if same method of accounting is used for tax and financial report. We only consider income for current year, and put the remaining under next year's income.
PSQ
Source: http://www.irs.gov
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