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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28086
Experience:  Taxes, Immigration, Labor Relations
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Can a corporation have a reserve for future salaries?

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Can a corporation have a reserve for future salaries?

LEV :

Hi and welcome to Just Answer!
Yes - a corporation may have a reserve fund for any business reason including future salary expenses - that is not an issue.
However - if you are looking for additional deductions to reduce corporate taxable income - funds in the reserve may not be deducted unless expenses are actually paid.

Customer:

Ah, thank you. That does, in fact, answer the question. Am I correct, however, that if the corporation reports on an accrual basis, any billed expenses can be deducted, even if not yet paid?

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LEV :

Yes - I am here.


 

LEV :

Future salaries may not be treated as billed expenses.


 

LEV :

On accrual basis the corporation may deduct in the taxable year in which all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to the liability. So if expenses were only billed - that might be not enough for deductions.
Please be sure to ask for clarification if needed.

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