Question

An employee gets his annual bonus the day before Thanksgiving. She gladly accepts the money.

In early December the employee hears that Congress is going to pass a tax bill and taxes will be lower next year.

The employee asks her boss if Congress does act, could they alter the paperwork and make the bonus appear to be paid January 1 or next year.

Should we comply with the Code? Is it ethical? Provide supporting evidence.

Answer 1

It is unethical to postpone the recognition of income in order to reduce the tax burden.

In the given case, on knowing that the taxe rates are going to reduce in the next year the employee is thinking of postponement of his bonus recognition as an income. Which is against the ethical principles.

Also applying the accrual concept, we cannot do the same. The company can take bonus paid as a deduction from revenue, only when the employee pays tax on the same. Considering this view also it is not the right way.

Si inorder to comply with the code, the bonus should be included in the income of the year in which it is received by the employee. And also in the year in which it is taken as a deduction by the employer.