TAX Q&A;: Deferring Pay

Q: I am a real estate agent and wanted to defer some commissions until 1999 to reduce my taxable income for 1998. My previous companies have been willing to do this, but my current employer refused, saying that such deferrals are against IRS regulations. Now I am totally confused. Who is correct? Can you direct me to the appropriate IRS regulation?

A: Sometimes companies are willing to postpone bonuses or commissions so that an employee can reduce his or her taxable income for the year. Technically, however, most taxpayers are required to report income when the money is unconditionally subject to their demand--in other words, as soon as they could have received it. The fact that you were able to receive this income before the end of the year, even if you didn’t want to, is clear evidence of the money’s being subject to your demand.

In addition, many companies want to report bonuses and commissions as soon as possible, in order to get a tax deduction. The companies could potentially lose the deduction if they paid you after year-end, if their accounting rules require them to pay you when you earn the commissions.

--ERNEST F. HOWARD, CPA, Playa del Rey

For more information on taxes and to see other questions and answers in this series, go to The Times’ Web site at https://ww.latimes.com/taxes. To find a CPA, visit the California Society of CPAs at https://www.calcpa.org.