On December 31,2011,Lavender,Inc.,an accrual basis C corporation,accrues a $90,000 bonus to Barry,its vice president and a 70% shareholder.Lavender pays the bonus to Barry,who is a cash basis taxpayer,on March 15,20117.Lavender can deduct the bonus in 2012,the year in which it is included in Barry's gross income.

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Lavender can deduct the bonus in the year in which it accrues, which is 2011. Barry's method of accounting (cash basis) does not affect Lavender's deduction. The fact that Barry is a shareholder also does not affect Lavender's deduction, as long as the bonus is reasonable and necessary for Lavender's business. The year in which Barry includes the bonus in his gross income (2017) is not relevant to Lavender's deduction.