What Does It Mean to Realize
Some people think that if there had not
received income or have not been paid, then they would not have
to report that amount to the IRS. However, these may not be the
case every time. According to the IRS, once you have done
everything needed to complete the job and the payment is
available, even though you have not received it in your hand,
the income is considered to have been realized and will be
included for tax purposes.
For example, somebody asked
you to do a job and promised to pay you on the
day you finished.
However, when you have done
the job, payment is delayed for some reasons.
Even if, it takes your client a month to pay
you, instead of the day you've finished a job
like he promised, the income is considered
realized on the day you've finished the
You will then need to report
that income you have not received to the IRS
for tax purposes.
There are people that ask to be paid in
January instead of December so that they will not have to
include that payment for tax purposes. The problem is, even
though you do not have the money in your hands till January of
the following year, the income is considered a realized and
available to you in December. That means, the IRS will want to
know about it and will want to include it when calculating your
If you are audited, the IRS auditor will
recalculate your tax liabilities including that income if you
did not include it on your tax return. If the IRS auditor finds
some income that you delayed so that you would not have to pay
taxes, there will also be penalties and interests added to your