Constructive Receipt and Timing
When Is Income Recognized?
Taxable income is generally recognized when it is actually or constructively received by a cash-basis taxpayer. Constructive receipt occurs when income is made available without substantial restrictions, even if the taxpayer chooses not to collect it immediately.
- Actually received cash is taxable.
- Funds available without restriction may be constructively received.
- Delaying collection voluntarily usually does not postpone taxation.
Tip
Pay attention to the tax year in which income becomes available, since timing affects reporting requirements.
Summary
The timing of income recognition depends on when the taxpayer receives or has unrestricted access to the income.