Question

Katie was notified in November that she will be receiving a $75,000 bonus. This is her first year as an executive and she is thrilled, but she is concerned about the tax impact. She decides to take $25,000 in December (the normal payable date) and to defer the residual for 15 years when she plans to retire. Has she violate the economic benefit rule with this decision

Answer 1

When Katie decides to take $25,000 in December (the normal payable date) and to defer the residual for 15 years when she plans to retire. "She does not violate the economic benefit rule with the decision."

What is Economic Benefit Rule?

It is a principle of taxation that affects taxpayers with cash basis who are paid for their services.

According to its provisions, a taxpayer is subject to taxation if they derive a "economic benefit" from an unqualified right to acquire property in the future.

Some examples of economic benefit rule are-

• net income and revenues,
• profit and net cash flow,
• a decrease in anything, such a cost,
• cheaper labour or raw material costs.

Thus, the benefit a person receives from paying less for a good than the utmost price they are willing to pay for it is known as the net economic benefit.

To know more about the principle of taxation, here

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