Question

Jorgensen High Tech Inc. is a calendar-year, accrual-method taxpayer. At the end of year 1, Jorgensen accrued and deducted the following bonuses for certain employees for financial accounting purposes.

$40,000 for Ken.
$30,000 for Jayne.
$20,000 for Jill.
$10,000 for Justin.
Required:
1. How much of the accrued bonuses can Jorgensen deduct in year 1 under the following alternative scenarios?
a. Jorgense paid the bonuses to the employees on March 1 of year 2.
b. Jorgense paid the bonuses to the employees on April 1 of year 2.

Answer 1

a. Jorgensen paid the bonuses to the employees on March 1 of year 2.

Year 1 Year 2

Ken 40,000

Jayne 30,000

Jill 20,000

Justin 10,000

Total 100,000

100,000 could be withheld if they had been compensated by two and a half months of the end of the year.

b. Jorgensen paid the bonuses to the employees on April 1 of year 2.

Year 1 Year 2

Ken 40,000

Jayne 30,000

Jill 20,000

Justin 10,000

Total 100,000

Can subtract 100,000 in year 2 because it has not been charged within 2 1⁄2 months of the end of the year.