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Cash basis taxpayers take deductions when paid, although a lot of us technically use a hybrid system where we accrue payroll taxes, and deduct them in the year accrued.
Regardless if not paid then the previously deducted expenses become income.
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TaxMonkey wrote:Cash basis taxpayers take deductions when paid, although a lot of us technically use a hybrid system where we accrue payroll taxes, and deduct them in the year accrued. Regardless if not paid then the previously deducted expenses become income.
7-Sep-2017 10:47am
Or is a SEP-IRA not covered by 408(a)?
We only accrue them if they are actually paid when due.
7-Sep-2017 2:01pm
We now turn to the third issue, which concerns the deductibility of the FUTA taxes and of the employer's portion of the FICA taxes. Secs. 3301, 3111. Petitioner incurred liability for these taxes with respect to wages paid to the employees of his law practice. On Schedule C of their tax returns, petitioners deducted these taxes for the year in which the liability accrued (i.e., the year in which the wages were paid), even though petitioner did not pay the tax until a later year. Petitioners argue that this treatment was proper and was in compliance with section 1.461-1(a)(1) and (3), Income Tax Regs. We disagree. Section 1.461-1(a)(1), Income Tax Regs., provides deductions for depreciation, amortization, depletion, and losses under sections 167, 611, and 165. Nothing in section 1.461-1(a)(3), Income Tax Regs., allows a cash basis taxpayer to deduct a tax before the year of payment. See also Rev. Rul. 74-70, 1974-1 C.B. 116 (for cash basis taxpayers, FICA and FUTA taxes are deductible for the tax year in which they are paid). Accordingly, petitioners may not deduct either the FUTA taxes or petitioner's share of FICA taxes until the year in which he paid such taxes.Tippin v. Commissioner, 104 T.C. 518, 532 (1995)
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makbo wrote:OK, so accruing is not OK for cash basis taxpayer, if I understand the cites provided correctly. Yet, we have multiple responses saying we commonly do that (and also see a quote below I found from 3 years ago, at the Quickbooks community site). So why the disconnect?
The OP did not mention the trust fund portion of payroll taxes, which also may not be deposited in the same year as accrued, but I suppose the argument there is that it's already not the company's money at that point, so they have in effect paid it as of the paydate.
What is the solution, i.e. the practical way to do it correctly? If I have the QB books as of 12/31 on cash basis, it's going to have payroll liabilities if not all deposits have been made yet. Do I make M1/M2 adjustments on the 1120S (or journal entries in QB for a Schedule C)?
8-Sep-2017 7:43am
So why the disconnect?
Do I make M1/M2 adjustments on the 1120S (or journal entries in QB for a Schedule C)?
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