Maureen is a cash-basis, calendar-year taxpayer and works as a sales manager for
ID: 2563870 • Letter: M
Question
Maureen is a cash-basis, calendar-year taxpayer and works as a sales manager for Teton Corporation, an accrual basis, calendar-year corporation. Teton’s president and 100 percent owner, Tom, (also a cash-basis taxpayer) authorizes a $25,000 bonus for Maureen and a $100,000 bonus for himself on December 22, year 1. The company pays his bonus on February 2, but fails to pay Maureen’s bonus until March 30, year 2.
What is Teton’s compensation deduction for the bonus for each year if, instead, both bonuses were paid on February 2 of year 2
Explanation / Answer
Teton's compensation deduction for the bonus for Year 1 125,000 and year 2 is 0
As Teton corporation follows accrual basis.
Though the bonuses are paid on Feb 2 of year 2 it will not change