Tax
Constructive Receipt
The doctrine that income is taxable when it's made available to you, regardless of whether you actually deposit the check or accept the payment.
Under the constructive receipt doctrine, a check received December 28 is taxable in the year received, even if you don't deposit it until January. Income from any source becomes taxable when it's credited to your account, set apart, or made available to you without substantial limitation.
Most relevant to cash-basis taxpayers (sole proprietors, single-member LLCs, individuals) deciding whether to defer or accelerate income near year-end.
Doesn't apply to accrual-basis businesses; they recognize income when earned regardless of receipt timing.
Common pitfalls
- Trying to 'defer' income by not cashing a check; the IRS treats it as received
- Holding payments at the customer's office to avoid year-end recognition only works if there are substantial limitations on access
- Confusing constructive receipt (income side) with the economic-benefit rule (deferred-comp deductibility); they are different doctrines with different rules
Related service
See tax and CPA servicesHave a Constructive Receipt situation in your business?
Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.