Accrued expenses from prior year in Form 1120

Forum|Forum|6 years ago
July 29, 2020
5 replies
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We are a corporation and use TurboTax Business. We use the accrual method of accounting and tax year is a calendar year. In 2018, there are accrued expenses (payroll bonuses and fees for IT consulting services) which are not deductible for tax purposes because they are not paid in 2018 and until 03/15/2019. They are paid in 2019. Should we deduct these expenses in a tax return for 2019? Where we should fill the amount of the expenses using TurboTax Business?

TurboTax Business Windows

Best answer by Anonymous_

@EvaEvtimova wrote:

Should we deduct these expenses in a tax return for 2019?

No, they should be (or have been) deducted in 2018 if the corporation is an accrual basis taxpayer because that is when the obligation (expense) was incurred.

See https://quickbooks.intuit.com/r/bookkeeping/cash-vs-accrual-accounting-whats-best-small-business/

Anonymous_Answer

Level 15

@EvaEvtimova wrote:

Should we deduct these expenses in a tax return for 2019?

No, they should be (or have been) deducted in 2018 if the corporation is an accrual basis taxpayer because that is when the obligation (expense) was incurred.

See https://quickbooks.intuit.com/r/bookkeeping/cash-vs-accrual-accounting-whats-best-small-business/

EvaEvtimovaAuthor

Level 2

@Anonymous_ No, they should be (or have been) deducted in 2018 if the corporation is an accrual basis taxpayer because that is when the obligation (expense) was incurred.

The case here is different. We accrued expenses in 2018 but they haven't been deducted in 2018 tax return Our CPA said that these expenses mustn't deduct in 2018 tax return because we didn't pay them in 2018 and until the date we fill out 2018 tax return.

This is a passage from https://www.irs.gov/pub/irs-pdf/p538.pdf:

"Workers' compensation and tort liability. If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments"

But if we don't deduct these expenses now we will never deduct them. That is right?

Anonymous_

Level 15

@EvaEvtimova wrote:
This is a passage from https://www.irs.gov/pub/irs-pdf/p538.pdf:

"Workers' compensation and tort liability. If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments"

I understand, but in your original post you mentioned bonuses and fees so you should read the section of the publication that refers to compensation for services.

Regardless, if you have a CPA, then you should follow your CPA's guidelines and advice.