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Define Constructive Receipt of Income

A constructive receipt of income as defined is the terminology used in order to describe that a tax payer is held responsible for an income. This type of receipt is considered an organized receipt because even when the income is not yet physically received, it has already been credited to the account of the tax payer in order not to defer tax on income.

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If a constructive receipt has been issued to a tax payer, then it is then holding off an income or a compensation that is not yet spent will be prevented, thus would then be served as an acknowledgment receipt proving that a certain accounting transaction has been made.


Constructive Receipt of Income Basics

A constructive receipt of income is often applied to working individuals who use an accounting method called cash basis, where the employee has to declare his income within a particular year even when he has not yet deposited a check after that specific year. That is the reason when a person has to issue a constructive receipt of income—there has to be a basis first before writing. Using receipt formats in word will be very helpful since it is made through a word processor, which is very convenient.

The content of a basic constructive receipt of income can be seen in receipt templates or are as follows:

  • Contingencies/Conditions – stating that a tax payer should have the desire to recognize the income as invoked in the doctrine of the constructive receipt.
  • Restrictions – a portion in the constructive receipt where the document itself won’t be existing if the tax payer is not free of executing the control over the disposition of funds.
  • Loss of Valuable Right – stating that a tax payer is required to give up a specific valuable right if a substantial limitation exists due to the increase of the cash surrendered.
  • Power to Collect – a portion stating that collecting of funds is necessary in accordance with the law with regards to taxes.

How Constructive Receipt of Income Works

  • When there is a constructive receipt of income, an amount will immediately be credited to the tax payer’s account, which means this will be readily available for the tax payer without any restrictions or prohibitions.
  • A constructive receipt’s function is very important because it works in different aspects such as in
    • employee paychecks where the payment has been considered already even if the check is in the employee’s account before the year ends;
    • pre-payments that are already considered a payment in the year;
    • other income in interest payments before the year ends is readily available even when the amount is not yet being inputted in the tax payer’s bookkeeping system; and
    • other payments are still considered a payment even if it is given at the end of the year. It is still considered one even though it is not due yet. Considering a printable receipt templates for entrepreneurs like you is very helpful for an “at ease” business enterprise transactions.
  • There will be a dividend declared to stockholders in December even when it is received in the month of January, still it will be stapled in December.

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