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On december 31, 2017, peregrine corporation, an accrual method, calendar year taxpayer, accrued a performance bonus of $100,000 to charles, a cash basis, calendar year taxpayer. charles is president and sole shareholder of the corporation. when can peregrine deduct the bonus?

Answer :

I think Peregrine can deduct the bonus in 2018, if there was payment made any time during that year. In this case Charles is related to the company (he is a shareholder with more than 50%), therefore the company's deduction for the bonus must wait until he includes the bonus in the gross income. Considering the fact that Charles is a cash basis, calendar tax payer, will include the payment in gross income in the year he receives it from the Company. Thus if the company pays Charles the bonus anytime in 2015, the corporation can deduct the bonus in 2018.

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