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Year-End Deductible Payments

The postmark’s the thing

By Julian Block
Julian Block
Courtesy of Julian Block

The Internal Revenue Service’s arsenal includes some tricky rules that can upset the plans of individuals who intend to make end-of-year payments to move deductions into 2009 because they are more advantageous this year than next. Contrary to what people scrambling for last-minute breaks prefer to believe, dating your checks "Dec. 31" does not automatically entitle you to claim the expenses for 2009, rather than 2010.

Instead, caution the feds, whether a deduction falls into this year or next depends on a check's date of delivery, which is not necessarily the date written on the face of a check. Fortunately, "date of delivery" does not mean that you have to depend on the sometimes-unpredictable US Postal Service to actually deliver your checks by December 31.

Just as long as you actually drop the letters in the mailbox in sufficient time for them to be collected and postmarked by midnight December 31, you nail down deductions for this year, even if your checks are not cashed or deposited until after the start of next year. That requirement applies to payments of business expenses, charitable contributions, medical bills, interest expenses, and all other deductions.

You garner no deductions for this year by mailing checks that are postdated to prevent cashing until next year, no matter when they are mailed. The IRS won a courtroom victory when the United States Tax Court disallowed a deduction for the year of mailing. The court stated that "A postdated check is not a check immediately payable but is a promise to pay on the date shown. It is not a promise to pay presently and it does not mature until the day of its date, after which it is payable on demand the same as if it had not been issued until that date although it is, as in the case of a promissory note, a negotiable instrument from the time issued.”

If IRS computers bounce your return for examination, odds are that the feds are going to look closely at large year-end checks dated December 31 made out to charities, doctors, tax collectors, and others. Clearly, you had deductions for this year in mind, so it is advisable to send such checks by certified mail. Request certified mail receipts, and staple them to your canceled checks. The receipts will back up your deductions for payments made with checks that may not clear the bank until well beyond the close of the year.

Credit cards come in handy should you be without enough cash to pay for the deductions that you would like to take by December 31. However, write-off rules can be complex if you pay with plastic, and the source of the credit card is important.

The rules are helpful when you pay for deductibles like business expenses, charitable donations, or medical services with bank or similar credit cards issued by third parties such as American Express, Visa, and MasterCard. You get immediate deductions for the year in which the charges are made, even if the credit card bills do not arrive until next year.

But write-offs may be unavailable for this year when you use charge cards issued by stores and gas stations and are billed directly. No deductions are allowed until you pay the bills.


Published December 23, 2009

Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as “a leading tax professional” (New York Times), "an accomplished writer on taxes" (Wall Street Journal), and "an authority on tax planning" (Financial Planning Magazine). For information about his books, visit JulianBlockTaxExpert.com.




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