 So a constructive receipt. You have constructive receipt of income when an amount is credited to your account or made available to you without restriction. So you do not need to have possession of it. If you authorize someone to be your agent and receive income for you, you are treated as having received it when your agent received it. Notice with a cash-based method, you can try to manipulate the cutoff dates, but the artist is going to try to restrict you from doing that, right? Because you could say, what I want you to do is I'm going to pay more expenses early or something like that. I'm going to try to prepay expenses. And if I pay them, even though I haven't consumed the goods or services, I can try to increase my expenses lower in my net income. Or I can try to say, I don't want to get any more income until January. So I'm just going to tell my clients not to pay me until January. Or you say, I'm going to let them pay me, but they're going to send me a check and I'm just not going to cash it till January. Well, that if you have constructive receipt of it, you're holding on to the check, nothing stopping you from cashing it, then it's basically should be income at that point in time. You might say, well, then I'm just going to have someone else collect it. You give the check to my friend or something. And they hold on to it, my assistant, right? And they hold on to it until January. So I didn't cash it till January. Well, they still have constructive receipt of it before that you're manipulating the cutoff date. You could have cashed it anytime, nothing will stop in you. Therefore it should have been recorded as income. So example, interest is credited to your bank account on December 2022. You do not withdraw it or enter it into your passbook until 2023. You must include it in your gross income for 2022 because you have the capacity to do so delaying receipt of income. You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. So you must report the income in the year the property is received or made available to you without restriction. So you had access to it. That means it's income, even though you're saying, I may have access, but I'm not going to touch it for a while. Well, nothing's stopping you from touching it. Therefore it's yours. It's your income. So example, a service contractor was entitled to receive $10,000 payment on a contract in December 2022. They were told in December that their payment was available. So at their request, they were not paid until January 2023. So now you have a situation you didn't hold on to the check. You told your customer, or whoever this is, someone told their customer, don't pay me until January. Well, nothing was stopping them from paying you earlier. You told them not to pay. They would have paid you. You have complete access to it. So it should be income. You're trying to manipulate the cutoff date to have less income lower in your taxes in 2022. So they must include this payment in their 2022 income because it was constructively received in 2022 checks. So receipt of a valid check by the end of tax year is constructive receipt of income in that year, even if you cannot cash or deposit the check until the following year. Example, Dr. Red received a check for $500 on December 30th, 2022 from a patient. Dr. Red could not deposit the check in their business account until January 3rd, 2023. Dr. Red must include this fee in income for 2022. Debt's paid by another person or canceled. If your debts are paid by another person or are canceled by your creditors, pay your creditors everything. You may have to report part or all of this debt relief as income. Debt relief can be a little bit confusing because people often think, you know, it doesn't seem like income because you didn't get cash. But if you owed someone money legitimately and then they decided that you no longer owe them money, which is weird, why would they do that possibly because you can't pay them or something, you're insolvent or whatever, then that would be the same as if like they gave you money and then you gave it back to them to pay off the debt, right? It's income. So debt relief is income. There might be exceptions to when you don't have to include debt relief as income, but you know, if you got money and then you paid off the debt, it would be income. If they just skip you getting the money but just removed the debt, it's basically the same thing. It's income. So if you receive income and this way you constructively receive the income when the debt is canceled or paid for more information, see canceled debt under kinds of income in chapter five. There might be exceptions. Remember, there's like PPP loans and government loans and whatnot when people are in insolvent situations. But the default position would be if a debt was canceled, it would be income. It would be included as income unless there's some exception to the rule. Repayment of income. If you include an amount in income and in a later year, you have to repay all or part of it, you can usually deduct the payment in the year in which you make it. So now you had income, but now they want, there's a refund. So they want sales, returns, and allowances or whatnot. So that means that you recorded income in a prior year, let's say 2021. Now you're in 2022, you had to pay back money that you recorded as income in the prior year. What do you do? Do you go back to the prior year and say, well, it wasn't really income because I had to pay it back. So I have to amend my return. No, not usually. Usually you're going to take care of it in the current year by deducting, by deducting a sales return or something like that, which would be easier to fix it basically going forward. So then if the amount you repay is over $3,000, a special rule applies for details about the special rules see repayment in chapter 11 of publication 535. So if it gets significant in dollar amount, then the iris might start to get skeptical that you're doing something manipulative, right? Because now you're you're taking, you know, you're recording income and deducting it in a following year and so on. So then if you're in that situation, you can look at publication 535 expenses under the cash method, you generally deduct expenses in the tax year in which you actually pay them. This includes business expenses for which you can contest liability. However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs as explained later under uniform capitalization rules. So once one more time, however, you may not be able to deduct an expense paid in advance. So note cash based method, one of the ways that you can manipulate on a cash based method is to say, well, what I'm going to do is I'm going to pay like five years of rent this year. Let's say this year 2022, my income was higher than I think it's going to be next year and I want to get the deduction this year. Well, what if I try to prepay a lot of my expenses like the rent? I say, Hey, landlord, I'll pay you five years rent early. And so I get the deduction this year instead of next year. If you do that, you're messing with the cutoff date because now you got an expense. Even though the bill wasn't really due, it's a prep, it should be a prepayment. If it was an accrual concept, you would put it on the books as an asset and have to allocate it. So the IRS is going to be skeptical of prepayments because that's a way that people can manipulate their books. And then you've got capitalization rules. Note that if you're on a cash to base system, most people would still think if you bought a building, for example, for 100,000 or a forklift for for 50,000 or something like that. Most people would say, I'm going to put that on the books as an asset. You wouldn't just expense the entire building when you buy it. Why? Because we naturally understand that we're going to use that building for a long time in the future. It's an asset. It's not it's not an expense that we consumed at the point of purchase. But that's an accrual that's an accrual concept to put it on the books as an asset and then depreciate the expense or the cost over its useful life is an accrual thing to do. So when you're on a cash to base system, everybody will basically deviate from a cash to base system for the tax code with large purchases of property, plant and equipment, because you're going to be required to put that on the books as an asset and depreciate the cost due to the fact that the difference between the time you paid for it and the time you consumed it is so large that you that we have to convert to an accrual basis. Meaning if otherwise, if you deducted like a hundred thousand dollar building in one year and year one, even though you're going to use it for 30 years, it's just an extreme is such an extreme example of a prepayment situation. That's basically the same kind of concept as if you're going to prepay the rent, right? If you prepay the rent and you say I'm going to pay for five years in advance, then then you're going to get the deduction when you pay it. It's a similar kind of concept here where you're going to say, I got a piece of equipment that I'm going to use for, you know, 10 years or something, and I'm going to pay for it and get the deduction all in year one with such a giant deviation, a giant difference between the consumption time and the payment time.