Ted, a cash basis taxpayer, received a $150,000 bonus in 2012 when he was in the 35% marginal tax bracket.In 2013, 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 2013 tax liability by $14,000 (.35 ´ $40,000).

Question

Quizplus · Accepted Answer

Ted, being a cash basis taxpayer, had included the $150,000 bonus in his income in 2012, but since the refund was required to be paid in 2013, he could reduce his tax liability for that year by $14,000 in the 35% tax bracket.

Ted, a Cash Basis Taxpayer, Received a $150,000 Bonus in 2012