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Accural basis taxpayer tests for deductions

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Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted

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Solution Summary

The solution explains the tests for a valid deductions and supports it with a number of examples to illustrate the concepts.

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An accrual basis tax payer can deduct expenses incurred but not yet paid in the following circumstances:

1. There is a legal obligation to pay
2. The amount of the liability can be determined
3. Economic performance has occurred

Reason 1 and 3 could be combined because there would normally be no legal obligation to pay if ...

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