I work as an independent contractor. I started working for a client in December, 2015. I billed them on Jan. 1 for the December work. They paid me on January 30, but they sent me a 1099 for 2015 for the amount that they paid me in 2016.

Is this legitimate? Do I then have to declare this income for 2015 even though I did not receive it until 2016?

Regards,

Ron Kincaid

Yes, it's legitimate. The income goes on your 2015 taxes.

It IS legitimate if the company you billed is on an accrual basis, meaning the expense when it is accrued (you work in December was accrued in December).

If they are on a cash basis, they charge the expense in the year it is paid.

Assuming you are on a cash basis, you are NOT obligated to carry the income in 2015, but it might be wise to do so to avoid the need to explain WHY you carried the income to 2016 should any tax authority ask that question.

Incorrect. As a rule, 1099's are based upon payment date, not accrual date. If not, cash basis taxpayers would have to include income they had not been paid for a year early.

I stand by my answer!

AtlantaTaxExpert, you say it depends on the basis used by the company you billed. But then you say 'assuming YOU are on a cash basis.' Does your cash basis accounting trump the company's accrual basis, if that's the case?

I personally go for practical. If the company files their copy as 2015 and you file as 2016, the IRS is going to get all confused, probably penalize you and charge interest, and even do so twice, given that it takes 2+ years to catch up to this sort of thing. And then make you take another 2 years to fix it.

Which is WHY you claim the income on the 2015 tax return to avoid all that hassle.

Treas. Reg. §1.6041-1 (the regulation that deals with 1099s) refers to "payments" and not to amounts paid or accrued. It says:

(i) Payments required to be reported. Except as otherwise provided in §§ 1.6041-3 and 1.6041-4, every person engaged in a trade or business shall make an information return for each calendar year with respect to payments it makes during the calendar year in the course of its trade or business to another person of fixed or determinable income described in paragraph (a)(1)(i) (A) or (B) of this section.

I believe the 1099 was improper.