Determining Actual Payment For U.S. Tax Purposes
For tax purposes, it is important to determine the timing of actual payment and whether it qualifies as a deduction in a taxpayer's calculation of taxable income.
Cash payments occur at the time of payment. This is the easy case, but payments in other forms can be trickier. Payment also occurs when the taxpayer transfers property or performs services in lieu of making a cash payment. Payment by check is deemed to occur when the check is delivered, as long as the check is honored on presentation by the payee. This rule is enforced even where presentation does not occur until the next taxable year, and even though the taxpayer could stop payment on the check in the meantime. Postdated checks, however, are not considered payment when delivered. Generally, payment by credit card occurs at the point of the sale and not when the taxpayer is billed by the credit card company or when the taxpayer pays the bill.
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