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Describe the tax consequences of the bonus to Canary

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Question - Canary Corporation, an accrual method C corporation, uses the calendar year for tax purposes. Leticia, a cash method taxpayer, is both a shareholder of Canary and the corporation's CFO. On December 31, 2019, Canary has accrued a $75,000 bonus to Leticia. Describe the tax consequences of the bonus to Canary (that is, in what taxable year may Canary deduct the bonus?) and to Leticia (that is, in what taxable year must Letitia include the bonus in her gross income?) under the following independent situations.

a. Leticia owns 35% of Canary Corporation's stock and the corporation pays the bonus to Leticia on February 1, 2020.

b. Leticia owns 75% of Canary Corporation's stock and the corporation pays the bonus to Leticia on April 1, 2020.

c. Leticia owns 75% of Canary Corporation's stock and the corporation pays the bonus to Leticia on February 1, 2020.

Reference no: EM132591312

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