On December 31,2015,Lavender,Inc. ,an accrual basis C corporation,accrues a $50,000 bonus to Barry,its vice president and a 40% shareholder.Lavender pays the bonus to Barry,who is a cash basis taxpayer,on March 14,2016.Lavender can deduct the bonus in 2016,the year in which it is included in Barry's gross income.

Question

Quizplus · Accepted Answer

Under the accrual method, Lavender, Inc. can deduct the bonus in the year it was accrued (2015) because it was paid within 2.5 months after the end of the tax year, not in 2016 when Barry includes it in his income.