I can find taxable income, which seems to basically be "income that is taxable". Okay. "Income" gets me something like "money received", but this seems vague for legal purposes.

My specific scenario causing me to wonder is this:

I have performed a service for someone. They offer to pay me for that service. I say "hey, instead, give that money to so-and-so charity". They say "okay".

Now, if they gave me the money, then it would be income "money received". I could then give it to charity, but it was still income.

But, if I tell them to give the money directly to charity, and I never "received" it, was it income? I mean, these two things seem functionally equivalent... the money was mine, I earned it, the check just never was in my hand personally.

I can think of an entire continuum of circumstances in between these two scenarios.... Exactly when does the money become my "income"?

  • A side issue - Income is not money revived, it is another term for profit. A business pays tax on profit, as calculated under relevant tax law. Revenue, the term for “money received”, can include money earned but not yet received depending on accounting method and sometimes money received is not revenue because it is a deposit or otherwise not yet earned. Nov 18, 2021 at 7:18
  • @GeorgeWhite your point is a good one, but it just shifts the question to "what is the definition of profit?" Personal income is figured through cash accounting, though, so if you are paid in arrears, you report the income when it was received. Another point is that income includes the value of goods and services received in barter, as well as unearned things such as gifts and found property. This question is interesting; it might be more interesting if the money is to be given not to a tax exempt charity but to a political candidate or something like that.
    – phoog
    Nov 18, 2021 at 7:52
  • You are correct. I was not answering the question just educating a little on terms and differentiating revenue from profit(income). Nov 18, 2021 at 7:56
  • @GeorgeWhite, in the US, personal "Income Tax" means personal income, more money received than from any profit/loss, which isn't measured for most individuals.
    – Tiger Guy
    Nov 18, 2021 at 13:14
  • Might be a better question for money.stackexchange.com/questions
    – JohnFx
    Nov 18, 2021 at 19:45

2 Answers 2



This is answered by upon the federal income tax in the United States. State and local income taxes and income taxes in other countries don't usually define key terms like income in exactly the same way, although many of the distinctions are irrelevant for the purpose of the specific example presented.

Short Answer

I have performed a service for someone. They offer to pay me for that service. I say "hey, instead, give that money to so-and-so charity". They say "okay".

In all likelihood, in the facts of the question, you do not have income until you are actually paid because you are almost surely a cash basis tax accounting taxpayer. So, you have no income and no charitable deduction in this example.

But, if you are an accrual basis tax accounting taxpayer, you have income when it is earned even if you haven't been paid yet. If you were, you would have income in this example, because you already earned it, and then would be entitled to a charitable deduction unless limitations on the charitable deduction (e.g. the requirement that you itemize your deductions rather than taking the standard deduction) prevents you from doing so.

Long Answer

The technical answer to the larger question is that income is defined in 26 U.S.C. § 61 and in 26 C.F.R. § 1.61-1 to 26 CFR § 1.61-22 and related revenue rulings and case law. But, as 26 C.F.R. § 1.61-1 explains, after providing a general definition, there are lots of other sections of the tax code that provide additional clarification regarding what constitutes income.

§ 1.61-1 Gross income.

(a) General definition. Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. Income may be realized, therefore, in the form of services, meals, accommodations, stock, or other property, as well as in cash. Section 61 lists the more common items of gross income for purposes of illustration. For purposes of further illustration, § 1.61-14 mentions several miscellaneous items of gross income not listed specifically in section 61. Gross income, however, is not limited to the items so enumerated.

(b) Cross references. Cross references to other provisions of the Code are to be found throughout the regulations under section 61. The purpose of these cross references is to direct attention to the more common items which are included in or excluded from gross income entirely, or treated in some special manner. To the extent that another section of the Code or of the regulations thereunder, provides specific treatment for any item of income, such other provision shall apply notwithstanding section 61 and the regulations thereunder. The cross references do not cover all possible items.

(1) For examples of items specifically included in gross income, see Part II (section 71 and following), Subchapter B, Chapter 1 of the Code.

(2) For examples of items specifically excluded from gross income, see part III (section 101 and following), Subchapter B, Chapter 1 of the Code.

(3) For general rules as to the taxable year for which an item is to be included in gross income, see section 451 and the regulations thereunder.

Also, while it isn't evident on the face of this tax code section and the relevant regulations, the definition of income is not the same for all taxpayers.

In particular, I've highlighted the key word in the definition for the purposes of this question which is "realized" which means one thing for cash based tax accounting taxpayers and another for accrual based tax accounting taxpayers.

This distinction is buried in much more obscure part of the Internal Revenue Code and Treasury Regulations and isn't actually found in any of the sections referenced above. Some aspects of this distinction aren't found in the tax code or regulations at all, and instead, incorporates by reference accounting concepts from outside of tax law that aren't affirmative spelled out in detail entirely within in any enacted tax legislation or Treasury regulations.

Probably the most convenient IRS resource explaining this distinction is IRS Publication 538, which (like all official IRS publications) has the force of a Treasury regulation as legal authority, even though it isn't part of the Internal Revenue Code, and isn't part of the Code of Federal Regulations, and doesn't have the same format as a usual Treasury Regulation.

Most taxpayers are cash basis taxpayers, and if you use that accounting system, you "realize" income only when you actually receive payment.

On the other hand, most C-corporations (especially publicly held companies), and some other taxpayers, are either required to, or elect to, use a different accounting system, called "accrual accounting", in which a taxpayer "realize" income when it is earned, even if this happens before the taxpayer actually receives payment (it means other things too, that are not relevant to the question).

In the example of the question, if you are a cash basis taxpayer, you do not have income under Section 61 of the Internal Revenue Code (which is Title 26 of the United States Code) because as a cash based accounting system taxpayer you only realize income when you are paid. Since you were not actually paid before you forfeited your legal right to be paid so that the charity could have it, you didn't have income in this transaction. And, since you never had that income for tax purposes, you cannot deduct the benefit you provide to a charity that could have been income to you if you declined to make the contribution, as a charitable deduction.

In contrast, if you were an accrual basis taxpayer (which, in all likelihood, you are not), you realize income when you have earned it, and since you had a legal right to be paid, you would have realized the income from you work, and then would have made a charitable deduction in the amount that you were entitled to be paid. But the availability of the charitable deduction would be subject to limitations on the charitable deduction that don't apply to merely unrealized potential to have income.

For example, individual taxpayers who don't itemize their deductions aren't entitled to claim the charitable deduction in most cases, and even other taxpayers are subject to sometimes complicated limitations on how much of a charitable tax deduction they are allowed to claim.

  • 1
    Hey, at least you're not editing Bibles :-) Nov 18, 2021 at 23:11
  • "you realize income only when you actually receive payment." Sorry, no. You realize income when you could have actually received payment . If you take action to prevent realization of income, the income is still taxed as imputed income. This is precisely a case where someone takes action to avoid actually receiving payment and the income is imputed when they would have received it but for their own actions. Nov 19, 2021 at 18:46
  • @DavidSchwartz do you have any references to back this up? If, so, I would love to see you post an answer to this question... "imputed income" is presumably part of the IRSs defintion of "income"?
    – Him
    Nov 19, 2021 at 19:16
  • @DavidSchwartz As explained in Pub 538 this isn't correct. The time of realization depends upon your accounting method. It would be perfectly plausible to adopt another rule and in non-income tax contexts (and under non-U.S. law) the law often does. But this is not how U.S. federal income taxation actually works as the law is on the books today. Words don't have one universal meaning in U.S. law. Legal meaning is context specific.
    – ohwilleke
    Nov 19, 2021 at 20:05
  • @ohwilleke So I can ask my employer to pay my son instead of me because his tax rate is lower and that's fine? Sorry, no. As soon as my employers pays for my services as I requested them to do, then I have income. As soon as the payment is made as you agreed and there is no further realization event expected, you have received and realized the income. Nov 19, 2021 at 20:52

Your example is a borderline case.

If you receive compensation for you work, it's taxable. Compensation does not need to be money: it can be goods, services, actions, non-actions or whatever else you can negotiate or agree on. In either case, this is taxable at the "fair market value" of the compensation.

If you create an agreement that states "I do work for you and in exchange you donate XXX$ dollars to charity YYY" then this would clearly be "bartering" and as such it's taxable income.

You could also create an agreement that you do this work for free out of the goodness of your heart. You may let slip that you would be delighted if the company would donate some money to a charity but as soon as these two things become causally related, this becomes compensation income. This means that if the company chooses not to donate anything, there is nothing you can do about it.

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