Taxing Definitions

Constructive Receipt

Thanks for sharing!
Constructive ReceiptImage source: openclipart.org

As a general rule, for tax purposes your income includes all the income you actually or constructively receive during the tax year.

“Constructive receipt” means income is available to you without restriction. An example is when your bank pays interest on your checking account by depositing an amount in your account that you can use when you choose. Even if you do not take the interest out of the account, you have constructively received it, and the interest is reportable as income on your tax return in the year the bank deposits it in your account.

Income is not constructively received in situations when your control is subject to substantial restrictions or limitations. For instance, say you own a certificate of deposit that matures in a year or less, and you’re required to forfeit three months of interest if you close the account before maturity. If the CD spans two of your taxable years (as in a six month CD taken out in September and maturing in March), and the bank credits your account for interest earned but not yet withdrawn, you may not have constructive receipt of that interest. [See Federal Tax Regulation 1.451-2.]

***

Other posts you might enjoy

Definition — The tipping point Image source: Sam Truong Dan on Unsplash   To tax those tips or not? Tips are not defined in the tax code or regulations so the determination of whether a payment is a tip depends on four factors. The absence of any one factor creates doubt as to whether the payments are tips. In Offi...
Definition — Identifying the employer Photo by Nick Hillier on Unsplash   What's your number? If you're required to file certain business tax returns, the answer is an employer identification number, or EIN. The IRS assigns employer identification numbers when you file an application (generally Form SS-4). In fiscal year 201...
Definition — Virtually taxable Image source: wpclipart.com   If you want to know the value of money, both real and virtual, you can try to borrow some. Or, in the case of digital currency, you could ask the Internal Revenue Service. The buying and selling of digital assets, including coins and tokens offered and so...
Definitions — Order in the court Image source: openclipart.org   If it please the court … A few weeks ago, the national taxpayer advocate released the 2017 Annual Report to Congress, as required by law. (Section 7803(c)(2)(B)(ii)) Part of the first volume of the report discusses the ten most litigated issues as measu...
Tagged , , ,