Bart owns 100% of the stock of Octo Corporation,which uses the accrual method. Bart's sister Samantha,a cash method taxpayer,did some advertising work for Octo in November 2014.In December,Octo received a billing statement from Samantha for $5,000 and paid Samantha the $5,000 in January 2015. Samantha is a calendar year taxpayer.When may Octo deduct the $5,000?
A)2014
B)2015
C)Either 2014 or 2015
D)The expense is not deductible since Samantha is Bart's sister.

Question

Quizplus · Accepted Answer

Octo Corporation uses the accrual method of accounting, which means expenses are deductible when incurred and not when paid. Samantha provided the advertising services in November 2014, so the expense was incurred in 2014. However, since Samantha is a cash method taxpayer, she did not include the payment in her income until she received it in January 2015. Therefore, Octo may deduct the $5,000 in 2015, when it was paid. The fact that Samantha is Bart's sister does not affect the deductibility of the expense.

Bart Owns 100% of the Stock of Octo Corporation,which Uses