ABC Inc. is a calendar-year corporation that operates on the accrual method of accounting. On December 15,
Question:
ABC Inc. is a calendar-year corporation that operates on the accrual method of accounting. On December 15, 2022, ABC's board of directors approved a bonus plan for its 10 employees, who are all cash-basis taxpayers. The plan provides that each employee will receive a bonus of $10,000 on January 15, 2023, if they are still employed by ABC on that date. ABC has sufficient earnings and profits to pay the bonuses.
For federal income tax purposes, determine the following:
(a) When can ABC deduct the bonuses?
(b) When must the employees include the bonuses in income?
(c) For Employee 1 who has a base salary of $160,000, what are the payroll tax withholding, deposit and reporting obligations of ABC with respect to the bonus?
Provide a brief explanation for your answer.
Expert Answer:
a ABC Inc can deduct the bonuses for tax purposes in the tax year in which the amount is incurred an... View the full answer
