Question: After reading your article in The Washington Post of Feb. 14, I realized I was in the same category as your questioner. I was taxed on better than $1,700 that was not made available to me until Jan. 4, 1983, by deposit to my bank account. I called the IRS Taxpayer Service. They said you were all wrong and that it was the date on the check that counted for deposit purposes. They cited as an example a check to a doctor dated Dec. 31, 1982, that could count as a medical expense even if the doctor didn't receive it until 1983. I think you're right, but the IRS promised to bring an action against me if I reported income different from that on my W-2.
Answer: Thank you for your vote of confidence, which in this instance at least was not misplaced.
When this question was first raised by a reader, I knew it was an obscure point that wasn't specifically covered in the commonly used reference books. So I called the good people at IRS headquarters who are available to help those who write for the media.
They took the problem to their technical folks, who did some research and brought back an answer that confirmed my original reaction. Income is taxable in the year received (either actually or constructively) and, for direct deposit payroll checks, it is the date of receipt by the bank and crediting to your account that governs.
The example cited by your IRS respondent is appropriate, but he used the wrong end of the question. In the case of a medical payment mailed to the doctor on Dec. 31, 1982 (it's the mailing date, not the date on the check, that's important), the deduction goes on the payer's 1982 tax return.
But he should have gone on to step 2: Presumably the check didn't arrive in the doctor's office until Jan. 2 or 3--and it becomes 1983 income on the doctor's tax return even though the payer claimed it for 1982.
This particular situation may not be of direct interest to a lot of readers. I've devoted space to it because it illustrates two important points. First, the date of actual or contructive receipt of income governs the tax year for which it is reported for cash-basis taxpayers (that's most of us).
And second, we all make our share of mistakes. I expect readers to let me know if they think I've goofed. You should also know that sometimes you'll get an incorrect answer from the IRS.
If you think the answer is wrong, don't accept it. Call Taxpayer Service again and ask the question of another technician; or go to the IRS office in person, or drop me a line and I'll try to get the right answer for you.
Q: I am in my first year of retirement from federal civil service and my annuity is not yet taxable. Of course I am pleased with the zero tax bill, but I still have deductible expenses. It there any provision for carrying these deductions over into next year when the annuity will be taxable?
A: Sorry, but it just doesn't work that way. Deductions may be claimed only in the year paid, and may not be carried forward to the following year.
You may be able to salvage some part of the deductions by postponing payment until next year. Perhaps you can delay some 1983 payments on your church building fund pledge until January 1984. Or if you're contemplating having storm windows installed at your home, it might pay to wait until next year so you can get the energy conservation tax credit.
And if you have taxable income due you from some negotiable source, try to move it back from 1984 to 1983, a year when you have little or no tax liability.
Tax planning is a year-round project--particularly when you anticipate a change in your tax situation from one year to the next. Take a good look at all your anticipated income and expenses and try to shift as many as you can into the year that gives you the best tax advantage.