Are 2010 wages for 2009 work deductible in 2009?

[GrindStone]

Hello,

Can the payroll cost for work performed in the second half of December 2009 be deducted for 2009 even though checks were cut in 2010? We do the accounting on the cash basis not accrual.

Two different accountants at a former company used to have us do this but my new accountant says no.

Thanks!

[vangogh]

I'm not the expert, but I think it comes down to when the money was paid and not when the work itself was actually performed. I'm pretty sure that's how the cash basis for accounting works. If you paid in 2010 then your cost is in 2010 and not 2009.

I'm sure those who know more about this than I do will see this thread before too long and provide a better answer.

[Evan]

I could be persuaded both ways. Cash basis isn't as "strict" as you think, because one could constructively receive cash, even if it wasn't in the bank -- and that money is considered income. (E.g. it's in your stack of mail, but you don't go through it until 2010 and let it sit for two weeks on your desk towards the end of the year.)

Even though you're a cash basis, you could still argue that you wanted to accrue your salary and had not paid it yet. For FICA purposes, that certainly was a 2009 event, and should be recorded then.

It isn't entirely uncommon for prior year salaries to be made in the subsequent year.

[GrindStone]

Thanks Evan !

That makes sense that we can take that deduction in either year.

Can't we also deduct credit card purchases made in the previous year, even if you're using cash basis? Is there a rule or a list somewhere I can read about deductions that can be taken in the previous year?

[Evan]

Credit card purchases are considered "cash". So if you made a purchase on, say, December 13th, but you don't get the credit card bill until January 5, and the payment until January 31 -- the fact is that purchase was made on December 31, and it is considered a "cash payment" as of that date...