Emily is a cash basis taxpayer, and she was an especially productive salesperson last year. In December of last year her supervisor told Emily she had earned a $5,000 bonus. However, Emily received the bonus check after year end. Identify the principle that will determine when Emily is taxed on the bonus:

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The principle that will determine when Emily is taxed on the bonus is constructive receipt. Constructive receipt means that income is taxable when it is credited to the taxpayer's account or set aside for them to use, regardless of whether they have actually received the income. In this case, even though Emily did not physically receive the bonus check until after year end, she was informed of the bonus before year end and had a right to receive it. Therefore, she had constructive receipt of the bonus in the year it was earned and it is taxable in that year.

Emily Is a Cash Basis Taxpayer, and She Was an Especially