Ted, a Cash Basis Taxpayer, Received a $150,000 Bonus in 2017

Ted, a cash basis taxpayer, received a $150,000 bonus in 2017 when he was in the 35% marginal tax bracket. In 2018, when Ted was in the 28% marginal tax bracket, it was discovered that the bonus was incorrectly computed, and Ted was required to refund $40,000 to his employer. As a result of the refund, Ted can reduce his 2018 tax liability by $14,000 (.35 × $40,000).