Does an employee expense report get deducted in the year paid, or incurred, for an S corp?

"Boston CPA" wrote

Note: corp is a cash basis taxpayer

I'm guessing 2009 because expense paid in 2009, assuming Acme is cash basis and calendar year. Sounds like a homework problem.

Normally the answer will hinge on whether the corp. is cash or accrual basis. However, when dealing with an owner the rule changes just a bit. An accrual corp. is allowed the deduction in the year the cash basis owners reports the income - remember the old matching rule from accounting class.

Hope this helps, Gene E. Utterback, EA, RFC, ABA

"Gene E. Utterback, EA, RFC, ABA" wrote

Thank you Gene. I am confused when you say: "An accrual corp. is allowed the deduction in the year the cash basis owners reports the income".

Why would the cash basis owners ever report income from an expense reimbursement under an accountable plan? Did you mean to say "in the year the cash basis owners account for the expense"?

In any event, this is a cash basis S-corp. What would the answer be in that case? Thanks!

My apologies for the lack of clarity (its tax season and I'm up to my ears while still trying to be helpful here). I also confess that while I SAW expense reimbursement I interpreted as something else, specifically the accrual of a bonus to an employee/owner - again, my apologies.

In this situation, when the company is issuing a reimbursement and the company is on the cash basis, the company gets the deduction in the year they write the check. When the expense report was turned in really doesn't matter.

NOW, if the company needs the deduction in 2008 there is a way to get it - the company can book the expense report by debiting the appropriate expenses THEN crediting Additional Paid In Capital for the owner all in 2008. This gets the expenses on the books but requires no disbursement of money. Then in 2009 the owner takes a distribution, which gets booked as a distribution and reduces his capital account, but which isn't tied to an expense (which was booked the prior year).

Hope this clarifies the matter for you, Gene E. Utterback, EA, RFC, ABA

Thank you Gene! Much appreciated.