Timing of Self-Employment Income

Timing of Self-Employment Income refers to the specific period in which income earned from self-employment activities is recognized for tax purposes.

In accounting, self-employment income is typically reported using the cash basis or accrual basis of accounting. Under the cash basis, income is recognized when it is actually received, whereas under the accrual basis, income is recognized when it is earned, regardless of when payment is received.

For example, if a freelance graphic designer completes a project in December but does not receive payment until January, under the cash basis, the income would be reported in January. Conversely, under the accrual basis, the income would be reported in December, reflecting when the service was performed.

Understanding the timing of self-employment income is crucial for accurately reporting earnings and meeting tax obligations, as it can affect cash flow and tax liability.