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 2019.In December,Octo received a billing statement from Samantha for $5,000 and paid Samantha the $5,000 in January 2020.Samantha is a calendar-year taxpayer.When may Octo deduct the $5,000?
A)2019
B)2020
C)Either 2019 or 2020
D)The expense is not deductible since Samantha is Bart's sister.

Question

Quizplus · Accepted Answer

Octo Corporation uses the accrual method of accounting, which means that expenses are recorded when they are incurred, not when they are paid. Since Samantha performed the advertising work in November 2019, the expense was incurred in 2019, but the payment was made in January 2020. Therefore, the $5,000 can be deducted by Octo in 2020, the year in which it was paid. The fact that Samantha is Bart's sister has no impact on the deductibility of the expense.

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