Constructive Income

“Constructive Income” is a form of income that should be declared on your tax income.  The IRS consider income to include constructive income.  Constructive income is define as income, for tax purposes, money or property that is available to you or is credited to your account.  The income is taxable as soon as it becomes available to you.

For example, say you were working hard and during work for a client for the entire year.  They finally pay you $20,000.00 for all the work that you did on December 15, 2012.  You had a particularly good year and if you deposit that check, your overall earned income will put you into a higher tax bracket.  This will cost you thousands of dollars in additional taxes.

So to avoid the additional taxes, you decide to deposit the check on January 5, 2013 so that the $20,000 can be reported on your 2013 taxes instead.  Under the tax code, the $20,000.00 was available to you on December 15, 2012, and should be listed as income in the 2012 tax year.