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. Under the constructive receipt principle, income is taxable when it is made available to the taxpayer, even if the taxpayer chooses not to take possession of it. In this case, although Emily did not physically receive the bonus check in 2019, she was notified of its availability and had the ability to receive it before year-end, which triggers the constructive receipt rule. Therefore, the bonus is taxable in 2019, even though Emily received the physical check in 2020. The other principles listed are not relevant to this situation.

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