Quick question — do you report contingency fee income in the year you earn it or the year you receive payment? Some of my fees are invoiced in December but not paid until January.
Dead thread — tax implications of contingency income
Depends on your accounting method. If you're cash basis (which most sole proprietors are), you report it when you receive it. If you're accrual basis, you report when it's earned. Talk to your accountant — this isn't really an auditing question but it matters for quarterly estimated taxes if you have a big fee hit in one quarter.