December or January? Which Tax Year a Receipt Actually Belongs To

Published: August 5, 2026 · Reading time: 11 min

TL;DR: Cash-basis freelancers deduct in the year they pay — but "pay" has a different meaning for every payment method. A charge on a bank credit card is payment on the charge date (Rev. Rul. 78-38), so a December 29 charge is a December deduction even if the card is settled in February. A charge on a vendor's own account is not payment until you pay the vendor (Rev. Rul. 78-39). A cheque is payment when mailed or delivered, not when it clears. A gift card is not payment for what you later buy with it. The statement closing date is never the answer to anything. And none of it helps if the payment reaches past the 12-month rule.

There is one week a year when the question "which pile does this go in?" has a real dollar answer, and it starts around December 20.

Most receipts never raise it. You buy something, you pay for it, both happen on the same Tuesday in June, and the year is obvious. Then December arrives — you charge a laptop on the 29th, mail a subcontractor's cheque on the 30th, a client's payment shows up on the 31st, and a supplier invoices you on the 28th on net-30 terms — and four transactions in one week land in three different years depending on rules nobody explained.

This guide is the rulebook. It assumes you are on the cash method, which nearly every freelancer is; if you are not sure, see cash vs. accrual.

The rule, and why it isn't as simple as it sounds

Under the cash method you deduct an expense in the year you pay it. Simple enough — until you notice that "pay" is doing a lot of work in that sentence.

Handing over cash is obviously payment. Is charging a card payment, when no money has moved? Is mailing a cheque payment, when it hasn't cleared? Is telling your supplier "put it on my account" payment?

The IRS has answered each of these, and the answers are not the same.

The table that settles it

Three of those rows are worth expanding, because they are where the money is.

The credit card rule is your best year-end lever

Rev. Rul. 78-38 is the reason a cash-basis freelancer can accelerate a deduction into a closing year without having the cash to pay for it.

When you charge a deductible expense to a third-party bank card, the issuer advances funds and pays the merchant on your behalf. In substance you borrowed money and used it to pay the vendor — which is payment, on the charge date. Your later payment to the card issuer is repayment of a loan and is not separately deductible.

Marcus buys a $2,400 laptop on December 29, 2026, on his business Visa. The statement closes January 5. He pays it on February 12.

The deduction is 2026. And it is once — the February payment is not a second deduction, which is the mirror-image error people make when they reconcile from bank statements rather than card statements.

The statement date is never the controlling date for anything. It is an artefact of the issuer's billing cycle. A December 29 charge that lands on a January statement is still a December charge, and filing it by statement is how a whole week of deductions slides into the wrong year.

The store-account rule is the trap

Rev. Rul. 78-39 addresses the case that looks identical and isn't: a charge on an account with the same person who supplied the goods or services.

Here no third party advanced anything. You have promised to pay the vendor later, and a promise to pay is not payment. The deduction waits until you actually pay.

The last two rows are the fiddly ones, because retail cards come both ways. If the card is issued by a bank and can be settled independently of the merchant, it behaves as a bank card. If the "account" is simply the merchant extending you terms, it doesn't.

If you are deliberately accelerating a December deduction, the instrument you choose decides whether it works.

Cheques: mailed, not cleared

A cheque is payment when you unconditionally deliver or mail it, provided it is honored in due course. Not when it clears, and not when the payee gets round to depositing it.

So a subcontractor's cheque mailed December 30 and cleared January 8 is a December deduction.

Two things break it:

• Postdating. A cheque dated January 3 is not payment in December, whenever you mailed it
• A bounced cheque. It was never payment

Because the cancelled cheque shows only the clearing date, the year-end mailing needs its own evidence: a certified-mail receipt, a photo of the postmarked envelope, or at least a contemporaneous register entry. The bank record alone tells the wrong story.

Gift cards, deposits and retainers

All three fail for the same reason: the money is still economically yours.

• A gift card you bought is store credit. The deduction happens on redemption, in whatever year that falls. (A gift card you buy to give a client is different — that is a business gift when given, subject to the $25 per-recipient limit.)
• A refundable deposit — on a rented venue, a leased machine, an office — is a receivable, not an expense. It becomes a deduction when it is applied or forfeited
• A retainer you pay a lawyer or contractor is deductible as the services are actually rendered, not when the retainer is funded

The income side of the same week

The boundary cuts both ways, and the income rule is stricter than the expense rule: constructive receipt.

You have income when it is credited to your account or made available to you without substantial restriction — not when you deposit it, and not when you feel like recognising it.

That fourth row is the one people try. Turning down money that is available to you does not defer the income; it is the textbook constructive-receipt fact pattern. Deferring income to next year works by invoicing later, not by declining to open the envelope.

And whatever you decide, your 1099-K and 1099-NEC will report on the payer's or processor's timing, which may not match yours — see reconciling 1099s to gross receipts for how to document the difference rather than quietly absorb it.

Where the 12-month rule cuts this off

A December charge is payment in December. That does not automatically make it a December deduction, because prepaying does not let you buy an unlimited runway.

The 12-month rule allows an immediate deduction for a prepayment whose benefit does not extend beyond the earlier of 12 months after the benefit begins, or the end of the following tax year. So:

• December 2026 payment for a 12-month insurance policy starting January 2027 — generally deductible in 2026
• December 2026 payment for a three-year software licence — not deductible in full in 2026

Full detail in prepaying business expenses and the 12-month rule. The point here is that the charge-date rule and the 12-month rule are two separate tests and a December charge has to pass both.

What to keep so the year is provable

For an ordinary June receipt, the receipt is enough. For a boundary item, the receipt and the payment record disagree by definition, so you need both:

1. The receipt or invoice — what you bought, from whom, and its business purpose
2. Proof of the controlling date — the card statement line showing the charge date, the bank debit, or the postmark
3. A one-line note on anything that crosses the boundary: "charged 12/29/26, card paid 2/12/27"

That third item takes five seconds and prevents the reconciliation error where the same expense appears once from the receipt and once from the bank feed — see matching receipts to bank transactions.

And a warning that applies with unusual force here: for vehicle expenses, travel, meals and listed property, §274(d) shuts off the Cohan rule entirely. A reconstructed date on a January mileage entry that should have been December is not something an estimate can rescue.

The January boundary sweep

Fifteen minutes in the first week of January, once a year:

• Pull every transaction dated December 20 – January 10
• For each, identify the payment method and its controlling date
• Re-file anything sitting in the wrong year
• Flag December card charges so the January statement payment isn't deducted twice
• Check any December prepayment against the 12-month rule
• Record client payments received in December but deposited in January as December income
• Note the odometer reading on December 31 — see odometer readings and the mileage log

Frequently Asked Questions

If I charge a business expense in December but pay the card in January, which year do I deduct it?

December. Revenue Ruling 78-38 treats a charge on a third-party bank credit card as payment at the moment of the charge, because you have borrowed from the card issuer and used the borrowed funds to pay the merchant. Your later payment to the issuer is repayment of a loan, not payment of the expense, and it is not separately deductible. This is one of the few genuinely useful year-end levers a cash-basis freelancer has: a December 31 charge is a deduction in the year that is closing even if no cash leaves your account until February. The date that controls is the charge date, not the statement closing date and not the payment due date.

Does a store charge account work the same way as a credit card?

No, and this is the distinction almost nobody knows. Revenue Ruling 78-39 addresses a charge on an account with the same person providing the goods or services — a two-party arrangement rather than a bank card. There, no third party has advanced any funds; you have merely promised to pay the vendor later, and a promise to pay is not payment. The deduction waits until you actually pay the vendor. Practically: a purchase on a Visa, Mastercard or Amex is deductible on the charge date, while the same purchase on a supplier's house account, a net-30 invoice, or a store card that is really a vendor credit line is deductible when you pay it. If you are trying to accelerate a deduction into December, the instrument you use decides whether it works.

Is a check deductible when I write it or when it clears?

When you deliver or mail it, provided it is honored in due course — not when it clears, and not when the recipient gets round to depositing it. A check mailed on December 30 that clears on January 8 is a December deduction, because unconditional delivery is treated as payment. Two caveats keep this honest. Postdating breaks it: a check dated January 3 is not payment in December no matter when you dropped it in the mailbox. And a check that bounces was never payment at all. Keep evidence of the mailing date — a certified mail receipt, a postmarked envelope, or at minimum a check register entry made at the time — because the cancelled check shows only the clearing date.

Can I deduct a gift card I bought for my business in December?

Not as a deduction for whatever you eventually buy with it. Buying a gift card converts cash into store credit; you have not yet purchased any deductible goods or services. The deduction happens when you redeem it for something with a business purpose, in whatever year that happens. The same logic applies to a refundable deposit or a retainer you pay a vendor: money that is still yours in economic substance is not a payment for an expense. The exception is a gift card you buy in order to give it to a client, which is a business gift in the year given, deductible subject to the $25 per-recipient annual limit.

Does the date on a receipt determine the tax year?

Often, but not reliably, which is why the receipt alone is not the whole record. The receipt shows the transaction date, and for cash, debit cards, ACH and bank credit cards that date is also the payment date, so the two agree. They diverge when the invoice is dated before you pay it, when a service is billed in arrears, when a vendor's house account is involved, or when a check is written on one date and mailed on another. Cash-basis accounting follows the date of payment, not the date of the invoice — so the defensible file for a boundary-crossing item is the receipt plus proof of when payment actually happened, which usually means the card statement line showing the charge date or the bank record showing the debit.

Authoritative References

• IRS Publication 538 — Accounting Periods and Methods
• IRS Publication 334 — Tax Guide for Small Business
• IRS Publication 535 — Business Expenses
• IRS — Instructions for Schedule C (Form 1040)
• IRS Publication 583 — Starting a Business and Keeping Records

Related reading: Cash vs. accrual accounting · Prepaying expenses & the 12-month rule · Matching receipts to bank transactions · Year-end tax moves

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This guide is general education for U.S. cash-basis freelancers and Schedule C filers in 2026. It is not personalized tax advice — bring your specific year-end timing questions to a CPA or EA.