[kukuna2008]

Axis Corp. is an accrual-basis, calendar-year corporation. On December 13, 20X1, the Board of Directors declared a 2% of profits bonus to all employees for services rendered during 20X1 and notified them in writing. None of the employees own stock in Axis. The amount represents reasonable compensation for services rendered and was paid on March 13, 20X2. Axis’ bonus expense may:

A. not be deducted on Axis’ 20X1 tax return because the per share employee amount cannot be determined with reasonable accuracy at the time of the declaration of the bonus.

B. be deducted on Axis’ 20X1 tax return.

C. be deducted on Axis’ 20X2 tax return.

D. not be deducted on Axis’ tax return because payment is a disguised dividend.

the correct answer is B. Ninja explanation is As long as an accrual-basis corporation pays a declared bonus within two months and 15 days after the end of the year, the bonus is deductible in the year declared, not the year paid. Since the bonus was declared in 20X1 and paid March 13, 20X2, it is deductible in 20X1.

my question is it is NOT paid in 2.5 months after year-end, why should be deductible?

Thank you!

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