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YEAR-END DEDUCTIONS: IS THE CHECK IN THE MAIL?

December 28, 2007

Yesterday we talked about how "the check is in the mail" doesn't cut it for estate and gift tax purposes.

Fortunately, a looser standard applies for income tax purposes. If a cash-basis taxpayer wants to claim a deduction for income tax purposes, it's normally good enough to have the check in the mail by December 31 this year to claim your deduction.

There are exceptions, of course. Having the check in the mail obviously doesn't create a deduction for something that's not deductible to begin with. Also, it doesn't override the related-party rules, so a check to an expense due a related party either has to be included in that party's income in the year the check is written, or the deduction has to be deferred until the income is reportable.

But for the most part, having the check in the mail gets you the deduction. If the deduction is a big one, it's wise to send the check using certified mail, return receipt requested, to prove that you mailed the check. It's worth the extra postage to avoid trying to explain to the IRS why a charity didn't bother to cash that big check until March.

There will be three more installments in our 2007 year-end tax planning series. Don't miss any!

Tags: certified mail.year-end tax planning.

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