Derik Inc., a calendar year, accrual basis corporation, accrued $278,000 vacation pay expense and a corresponding liability at the end of 2020. Derik paid $22,000 of the accrued liability to employees who took vacation between January 1 and March 15, 2021. How much of the accrued vacation pay expense is deductible in 2020?

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Quizplus · Accepted Answer

Under the accrual method, vacation pay is deductible in the year it is accrued only if it is paid within 2.5 months after the end of the tax year. Since $22,000 was paid by March 15, 2021, it is deductible in 2020.

Derik Inc, a Calendar Year, Accrual Basis Corporation, Accrued $278,000 Vacation