1. The payer dated the check Dec. 31, 2007--I received it on Jan. 3, 2008.

2. The 1099M I received from him for 2007 includes the amount received in 2008.

I am planning on using that income as 2008 income. How do I properly report the lesser amount on the 2007 tax forms?

That is, received $5,000 on Jan. 3.
1099M states $8,000 for 2007.
$8,000 - $5,000 = $3,000 received in 2007, and reportable in 2007.

Am I correct that since I received it in 2008, it is 2008 income, even though the 1099M from the payer says he paid it in 2007? Thanks.

Its very simple, report the entire amount included on the 1099-Misc on your Schedule C as gross income. Then include an item in income as an adjustment of $5,000 to offset the gross income (that is, as a negative amount). Then, make a comment Note 1, and explain in detail that this is an adjustment to the 1099-Misc income, and represents payments that were received in 2008. Therefore, being a cash basis taxpayer and following the rules of "Constructive Receipt", you are correctly going to include that adjustment as income on the 2008 Tax Return.

This happens all the time, corporations mail payments to consultants who do not deposit these checks as either they are on vacations or do not receive these checks by Dec 31st, year end.

Therefore, you are correct in your treatment of this adjustment provided you first include the entire amount reported on the 1099-Misc and show an adjustment of $5,000 plus include an explanation of this adjustment.

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