Jason's employer pays year-end bonuses each year on December 31. Jason, a cash basis taxpayer, would prefer to not pay tax on his bonus this year (and actually would prefer his daughter to pay tax on the bonus). So, he leaves town on December 31, 2016 and has his daughter, Julie, pick up his check on January 2, 2017. Who reports the income and when?

Question

Quizplus · Accepted Answer

Jason is a cash basis taxpayer, meaning he recognizes income when it is actually or constructively received. Since he left town on December 31 and did not have control over the check until the next year, he did not have constructive receipt and therefore does not need to report the income in 2016. Julie did have control over the check and therefore received the income in 2016, so she will need to report the income on her tax return for that year. Jason will report the income on his 2017 tax return, the year he actually received it.

Jason's Employer Pays Year-End Bonuses Each Year on December 31