What is the correct "Payment Date" when Receiving Payment via Check?

dc80 · ‎January 12, 2023

I see a lot of conflicting answers on this question, and it's not as simple as it seems. When I receive a check in the mail from a client as payment for an invoice, and I record a "Receive Payment" in Quickbooks, what would be the correct "Payment Date" to record for the payment, in this specific scenario:

I send the client an invoice on December 20

The client writes a check for payment and the check is dated December 26

The envelope containing the mailed check is postmarked on December 28

I receive the check in my postal mail on January 2

I finally deposit the check at my bank on January 5

I specifically highlight the above dates for a very important reason: if I record the "payment date" as the date I literally physically receive the check in my hands (January 2) then MY books will show it as received in 2023 but the CLIENT's books will show they made the payment in 2022. So, if the client issues me a 1099, it will naturally be included on the 2022 year's 1099. So do I record the "payment date" as the date I physically receive the check (which will make my books inconsistent with the 1099) or the date the client wrote on the check (which will of course be based on their books, not when I actually receive it, a bit misleading to my books).

Thanks in advance!

Rainflurry · ‎January 12, 2023

@dc80

This is only an issue if you're a cash basis taxpayer. If you're a cash basis taxpayer, you record income and, therefore, the payment date on an invoice, when the payment is "constructively received", that is, made available to you without restriction. So, in your example, the payment date is January 2, the day you received the check in the mail. Yes, the client will show that they made the payment on December 26, and issue you a 1099, but the mismatch is not being manipulated, it's what actually happened. You will have a mismatch between your 1099 and your books, but you do not need to report it as income in December.

If you're an accrual basis taxpayer, your payment received date is mostly irrelevant because you record income as of the invoice date, December 20. Your client would book the expense as of December 20 if they are accrual or December 26 if they are cash basis. Therefore, your books and 1099 will match.

dc80 · ‎January 12, 2023

Thank you! That is a great explanation! I have a follow up question: suppose the amount is significant enough, and the client reports it on their 1099 for 2022; won't it look like I "under-reported" if they have it on their 2022 books but I don't include it as income on mine?

Thank you again!

Dirkdaddy · ‎January 12, 2023

In that second question I'll give a shot. If someone has more experience chime in.

In my experience and reading the IRS instructions the 1099 is for the period you are getting paid by the customer. The CUSTOMER will or should (if your business formation is the type to receive a 1099) send you a 1099 for the payment in the prior year if over $600. The fact you don't get it in your bank isn't something the customer will know if issued close to the end of the year. You will receive the 1099 and that income will go into your tax forms. --- Unless you're on a cash basis.

In that case I'd guess it would be an explainable difference. If it is large don't forget to make quarterly tax payments fed/state as you see fit.

https://www.irs.gov/instructions/i1099msc#idm140364727411008

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What is the correct "Payment Date" when Receiving Payment via Check?