ABC Corporation mails out its annual Christmas bonuses to employees on December 23rd.Ed,a cash basis taxpayer,is an employee who is on a ski trip until January 3rd of the new year,but is aware that his annual Christmas bonus arrives on the 28th of December.Ed can delay reporting the income from the bonus until the new year.

Question

Quizplus · Accepted Answer

The cash basis method requires income to be reported in the year in which it is received or constructively received, which means when it is available to the taxpayer. Since Ed is aware of the arrival of his Christmas bonus on December 28th, it is considered constructively received and must be reported as income for the current tax year, even if he does not physically receive it until after the new year. Therefore, he cannot delay reporting the income until the new year.

ABC Corporation Mails Out Its Annual Christmas Bonuses to Employees