What Is A Constructive Receipt? – Definition, Working, and Example

Constructive receipt is an accounting concept where individuals gain control over income, even if they haven't physically received it, affecting how taxable income is reported.

This principle requires reporting income when you have the ability to use it, such as depositing a check, regardless of when it's physically in your possession.

Constructive Receipt

For businesses, constructive receipt occurs when funds are deposited into an account, allowing the business to spend the money even before it's available.

The doctrine of constructive receipt also applies to employees using the cash-basis accounting method, impacting how income is reported for tax purposes.

Constructive receipt is important for tax clarity, as it ensures income is taxed when it's accessible, preventing taxpayers from delaying payments to reduce taxable income.