On December 31, 2012, Lavender, Inc., an accrual basis C corporation, accrues a $90,000 bonus to Barry, its vice president and a 70% shareholder.Lavender pays the bonus to Barry, who is a cash basis taxpayer, on March 15, 2013.Lavender can deduct the bonus in 2013, the year in which it is included in Barry's gross income.

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Quizplus · Accepted Answer

Since Lavender is an accrual basis taxpayer, the bonus is deductible in the year it is accrued, which is 2012. Even though Barry receives the bonus in 2013, it is still considered part of his gross income for 2012 because it was accrued in that year. Therefore, Lavender can deduct the bonus in 2013.