Bart owns 100% of the stock of Octo Corporation,which uses the accrual method.Bart's sister Samantha,a cash method taxpayer,did some advertising work for Octo in November 2016.In December,Octo received a billing statement from Samantha for $5,000 and paid Samantha the $5,000 in January 2017.Samantha is a calendar year taxpayer.When may Octo deduct the $5,000?

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Since Octo Corporation uses the accrual method of accounting, expenses are generally deductible in the year in which they are incurred, even if they are paid in a later year. The advertising work was performed in November 2016, so the expense was incurred in 2016. However, since Samantha is a cash method taxpayer and did not receive payment until January 2017, the payment is considered to have been made in 2017 for tax purposes. Therefore, the $5,000 may be deducted by Octo Corporation in 2017 when the payment was actually made.

Bart Owns 100% of the Stock of Octo Corporation,which Uses