When I go to file my taxes for 2020, should I file income based on what was earned or only payments that I received by the end of the year. Example, I have notaries that I completed in December 2020 but I have not received all of those payments yet. The ones that I have yet to receive checks for should I still report that as income earned in 2020 or is that reported in 2021 when I receive the payment? Is this optional ? (cash vs accrual accounting?
That depends on whether you’re going to use the cash accounting method or accrual accounting method. Maybe this article will help - along with consulting a CPA or Tax Advisor
for me, I go by signing date. all signing 1-1-2020 to 12-31-2020 will be on 2020 tax return. I just think this is easier for me to keep track of.
It’s the cash method for me. I only like to pay taxes on money I actually received. Last thing I want to do is pay taxes on money that I may never see.
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Me too vvs - and I believe most notaries/signing agents use the cash method also. 15 years on these forums and I can’t say I’ve ever heard one say they use the accrual method.
One reason I use the cash method is that when I receive the payment, I know exactly what the payment is. Sometimes it’s a little different from what I expected. Maybe the scheduler said $120 on the phone, and the check is for $125. Maybe I worked 11 hours as an election official, but I’m not sure what the town’s hourly rate is. Once or twice I got an unexpected bonus. I like not having to make corrections to entries that the IRS might look at if I’m ever audited, especially if the initial entry occurs in one year and the correction occurs in the next year.
Being a Notary and/or a signing agent means you’re in business for yourself. At this point you need to have a conversation with a Tax Professional. There are many ways to get crossed up with the IRS. In the meantime keep all of your expenses (paper, printer, PC, software, printer cartridges, pens, etc.) including mileage. You’re better positioned if you keep all of your business expenses even if some don’t seem like business expenses, and let your tax pro help you determine what can be used or discarded. There are aspects to the Tax Cuts Jobs Act that are not in the common vernacular that can also benefit you in preparation of your returns.
Update>>>> I just tried to do my taxes… CASH method is the correct method. I tried to do it my way, but the numbers did not match up with the 1099’s. So, I guess it will be the cash method.