Under the accrual method, you generally report income in the tax year you earn it, regardless of when payment is received, and deduct expenses in the tax year you incur them, regardless of when payment is made.
Income
For income tax purposes, income should generally be reported when you earn the income, when the amount is due you, or when you receive payment, whichever comes first. Under the accrual method you report income when the events that fix your right to receive the income have occurred (you have delivered the product or rendered the service in order to earn the income), and the amount of the income can be determined with reasonable accuracy (the price has been agreed upon and the total amount due you is understood).
Advance Payments for Services
Generally, advance payments for services to be performed in future years are taxable in the year the payments are received. But if there is an agreement that the service will be completed by the end of the next tax year, the recognition of that income can be postponed and included in income the next year. But you cannot postpone the recognition of income beyond the next year.
If any part of the service is to be performed after the end of the next tax year, or at an unspecified date that may be after the end of the next tax year, you would have to include the entire advance payment for services as income in the year you receive the payment, and none of it in the next tax year.
If you sell, lease, build, install, or construct property in your business and you provide a service agreement with the property, you can postpone advance payments you receive for the service agreements. But this only applies if you also provide property without a service agreement in your normal course of business.
Rent payments you receive in advance are included in income when they are received. You cannot postpone reporting prepaid rent.