You are generally taxed on income that is available to you, regardless of whether it is actually in your possession.
A valid check that you received or that was made available to you before the end of the tax year is considered income constructively received in that year, even if you do not cash the check or deposit it to your account until the next year.
For example, if the postal service tries to deliver a check to you on the last day of the tax year but you are not at home to receive it, you must include the amount in your income for that tax year. If the check was mailed so that it could not possibly reach you until after the end of the tax year, and you could not otherwise get the funds before the end of the year, you include the amount in your income for the next year.
The most common example of “constructive receipt income” is dividends and capital gains from mutual funds that are reinvested. The taxing authorities view this like the mutual fund sent you a check, then you in turn sent a check to the mutual fund to buy more shares.
Gregory J. Cook, EA, CPA
Accredited Tax Advisor
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