Are you one of the many people who are paid with modalities other than cash? Or perhaps, like many people, you receive checks at the end of the year that you do not cash until the new year? If so, you still are on the hook for taxes for this non cash income. In kind payment that you received in 2016, even in the form of a check, counts toward the taxes you will be paying for that year.
The Curious Case of the Constructive Receipt
Under laws regarding constructive receipt, your income counts for the year in which you had the right to receive it, even if you defer payment until another year. Take, for instance, a holiday bonus check. If you decide not to cash it or even ask your boss to hand it to you after the New Year, you still had a right to receive it during the holidays. As such, it counts for income in that year.
Debt Forgiveness: Is It Non Cash Income?
Many of us have had a generous relative forgive a small debt. According to the IRS, this is not just generosity but an income. People and entities that loan you money but do not require full payment are required to report it as money paid to you. The only loophole is in bankruptcy or when you have more debt than assets in general.
Phantom Income Means Very Real Taxes
Many people make LLCs and S corporations to improve their tax picture, but this phantom income can be a real problem for some partners. If you are a owner of an entity such as this that made profits last year, you are obligated to report it as income even if the money never reached your bank account. Unfortunately these tax shelters can often be very leaky indeed.
While this may seem complicated, it is actually very simple. The IRS wants its fair share of your earnings even when they do not come in the form of cold hard cash. Any attempts to withhold this non cash income could prove disastrous for your taxes.
