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How Do I Prepare My Return? — When Do I Report My Income and Expenses?: Federal Income Tax (2025 IRS Guide)

This guide covers “How Do I Prepare My Return? — When Do I Report My Income and Expenses?” within federal income tax. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 17 (2025), Your Federal Income Tax, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

This section explains how to get ready to complete your tax return and when to report your income and expenses. It also explains how to complete certain sections of the form.

How Do I Prepare My Return? — When Do I Report My Income and Expenses?

You must figure your taxable income on the basis of a tax year. A “tax year” is an annual accounting period used for keeping records and reporting income and expenses. You must account for your income and expenses in a way that clearly shows your taxable income. The way you do this is called an accounting method. This section explains which accounting periods and methods you can use.

Accounting Periods

Most individual tax returns cover a calendar year—the 12 months from January 1 through December 31. If you don’t use a calendar year, your accounting period is a fiscal year. A regular fiscal year is a 12-month period that ends on the last day of any month except December. A 52-53-week fiscal year varies from 52 to 53 weeks and always ends on the same day of the week.

You choose your accounting period (tax year) when you file your first income tax return. It can’t be longer than 12 months.

More information.

For more information on accounting periods, including how to change your accounting period, see Pub. 538.

Accounting Methods

Your accounting method is the way you account for your income and expenses. Most taxpayers use either the cash method or an accrual method. You choose a method when you file your first income tax return. If you want to change your accounting method after that, you must generally get IRS approval. Use Form 3115 to request an accounting method change.

Cash method.

If you use this method, report all items of income in the year in which you actually or constructively receive them. Generally, you deduct all expenses in the year you actually pay them. This is the method most individual taxpayers use.

Constructive receipt.

Generally, you constructively receive income when it is credited to your account or set apart in any way that makes it available to you. You don’t need to have physical possession of it. For example, interest credited to your bank account on December 31, 2025, is taxable income to you in 2025 if you could have withdrawn it in 2025 (even if the amount isn’t entered in your records or withdrawn until 2026).

Garnished wages.

If your employer uses your wages to pay your debts, or if your wages are attached or garnished, the full amount is constructively received by you. You must include these wages in income for the year you would have received them.

Debts paid for you.

If another person cancels or pays your debts (but not as a gift or loan), you have constructively received the amount and must generally include it in your gross income for the year. See Canceled Debts in chapter 8 for more information.

Payment to third party.

If a third party is paid income from property you own, you have constructively received the income. It is the same as if you had actually received the income and paid it to the third party.

Payment to an agent.

Income an agent receives for you is income you constructively received in the year the agent receives it. If you indicate in a contract that your income is to be paid to another person, you must include the amount in your gross income when the other person receives it.

Check received or available.

A valid check that was made available to you before the end of the tax year is constructively received by you in that year. A check that was “made available to you” includes a check you have already received, but not cashed or deposited. It also includes, for example, your last paycheck of the year that your employer made available for you to pick up at the office before the end of the year. It is constructively received by you in that year whether or not you pick it up before the end of the year or wait to receive it by mail after the end of the year.

No constructive receipt.

There may be facts to show that you didn’t constructively receive income.

Example.

Lennon, a teacher, agreed to the school board’s condition that, in Lennon’s absence, Lennon would receive only the difference between Lennon’s regular salary and the salary of a substitute teacher hired by the school board. Therefore, Lennon didn’t constructively receive the amount by which Lennon’s salary was reduced to pay the substitute teacher.

Accrual method.

If you use an accrual method, you generally report income when you earn it, rather than when you receive it. You generally deduct your expenses when you incur them, rather than when you pay them.

Income paid in advance.

An advance payment of income is generally included in gross income in the year you receive it. Your method of accounting doesn’t matter as long as the income is available to you. An advance payment may include rent or interest you receive in advance and pay for services you will perform later.

A limited deferral until the next tax year may be allowed for certain advance payments. See Pub. 538 for specific information.

Additional information.

For more information on accounting methods, including how to change your accounting method, see Pub. 538.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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