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.

Question

Quizplus · Accepted Answer

The principle that will determine when Emily is taxed on the bonus is constructive receipt. This principle states that income is taxable when it is available to the taxpayer, meaning when it is credited to their account or made available for them to receive. In this case, even though Emily was promised a bonus in December, she did not receive it until after year-end, which means she did not have constructive receipt of the income in the current tax year. Therefore, she will not be taxed on the bonus until the following tax year when she receives it.

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