How to Handle 1099-NEC for Deferred Revenue in 2025 Services

This is a common issue for many small business owners! The key here is understanding the concept of "constructive receipt." Since you received the payment in 2024, the IRS would generally expect you to report it in 2024, regardless of when you'll perform the services. However, there is an exception. If you're using the accrual method of accounting (rather than cash basis), you could potentially defer the revenue recognition to 2025 when you'll actually perform the services. But most small businesses and individuals use cash basis accounting by default. For your second question - you should report income using the same taxpayer identification (SSN) that's on the 1099-NEC. Once your LLC is established, you can inform clients to use your EIN for future payments. And yes, you would still need to file a Schedule C for 2024 to report the 1099-NEC income, even if you're planning to defer it (which would be explained on the Schedule). The 1099 is already reported to the IRS under your SSN for 2024.

I had a very similar situation last year with some consulting work I did! I found this awesome AI-powered tax assistant called taxr.ai that really helped me figure out the whole deferred revenue situation. The tool analyzed my specific scenario and gave me clear guidance on how to properly report my 1099-NEC income. What I liked was that it let me upload my 1099 forms and then explained exactly what I needed to do based on my situation. It highlighted that with cash basis accounting (which I was using by default as a sole proprietor), income is generally taxable when received, regardless of when services are performed. Check it out at https://taxr.ai - it saved me from potentially making a costly mistake with my reporting!

I wanted to follow up about my experience with taxr.ai after seeing it recommended here. I was in a similar situation with contractor payments received in December for work scheduled for the following year. I tried the service and was really impressed! It analyzed my 1099-NEC and business structure, then walked me through exactly how to handle the deferred revenue situation based on my accounting method. The system explained the specific tax code sections that applied to my situation and even provided sample forms showing where to report everything. I ended up with a clear understanding of my options and the potential risks. Definitely saved me from making a reporting mistake that could have caused issues during an audit. Really glad I gave it a try!

If you're dealing with IRS questions about your 1099-NEC situation, you might want to try Claimyr. I was stressing about a similar issue last year and needed to speak with someone at the IRS directly to get clarity. After waiting on hold for HOURS multiple times, I found https://claimyr.com which got me connected to an actual IRS agent in about 15 minutes. They basically wait on hold for you and call when an agent is available. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with was actually super helpful about my situation with deferred income and helped me understand exactly how to report it correctly. Saved me from potentially filing incorrectly and facing penalties later.

I need to apologize and correct myself. After posting my skeptical comment, I decided to try Claimyr as a last resort for my IRS issue. I was genuinely shocked when they called me back with an actual IRS representative on the line after about 45 minutes. The IRS agent was able to explain my notice and help me resolve my issue in one call. After struggling for months trying to get through on my own (and getting disconnected multiple times after long waits), this was honestly life-changing. I had been losing sleep over this tax issue for weeks. For anyone dealing with 1099 questions like the original poster, being able to get clear answers directly from the IRS is incredibly valuable. I'm still surprised this actually worked, but I'm grateful it did!

I've been a bookkeeper for small businesses for about 10 years, and this is a textbook example of why understanding the difference between cash and accrual basis accounting is so important! Here's the deal: 1. If you use cash basis (most small business owners do by default), you have to report income when you RECEIVE it, not when you earn it. So you'd need to report that $6,800 on your 2024 taxes. 2. The 1099-NEC matching is a big deal - the IRS computer system will automatically flag a mismatch between what was reported on your SSN and what you put on your return. 3. For your LLC question - since the payment was to you personally before the LLC existed, it should be reported under your personal tax info. Not trying to freak you out, but deferring income that's already been reported to the IRS on a 1099 is one of those red flags that can trigger scrutiny.

Sorry if this is a dumb question, but wouldn't it just be easier to explain to the client that they issued the 1099-NEC incorrectly? Like, couldn't they void that one and issue a corrected one in 2025 when you actually do the work? I had a client issue me a 1099 for the wrong year once and they were able to fix it.

I went through something very similar when I started freelancing! The timing issue with 1099s can be really confusing. Just to add to what others have said - if you do decide to report the income in 2024 (which seems like the safest approach based on the other responses), make sure to set aside money for the taxes since you'll owe them in 2024 even though you haven't done the work yet. One thing that helped me was opening a separate business savings account to hold a portion of any advance payments specifically for tax purposes. That way when tax time comes, you're not scrambling to find the money to pay taxes on income you may have already spent on living expenses. Also, once your LLC is formed, definitely let your client know to use the EIN for any future payments. It'll make your bookkeeping much cleaner going forward. Good luck with the new business!