On December 19, 2015, Logo Inc., an accrual basis corporation, accrued $50,000 compensation expense for a routine year-end bonus payable to Mr. Craig, who is Logo's CFO. Logo paid the $50,000 to Mr. Craig on April 25, 2016. Which of the following statements is true?

Question

Quizplus · Accepted Answer

Generally, accrual basis taxpayers may deduct accrued compensation expenses in the year they are recognized, which is the year when all events fixing the liability have occurred and the amount of the liability can be determined with reasonable accuracy. However, under the tax law, employee bonuses are only deductible in the year they are paid, regardless of when they are accrued. Therefore, Logo cannot deduct the $50,000 accrued compensation expense in 2015 because it was not paid until 2016.