Payroll issue for tax

[Unregistered]

My client, s corp, has a last payroll ending on 12/22/05 for year 2005. I will make normal entry. Cash basis Taxpayer.

His next payroll is from 12/23/2005 - 01/06/2006 with payday 01/10/2006.

In 2005:
Take expense for wages up to 12/22/05 (Last Payroll)
Take payroll taxes for Dec (Due in January 2006- Fed Tax, FICA, State Unemp etc.) in 2005 even though not paid until 2006 as this is an exception to cash basis rule?

In 2006:

Take expenses of payroll from 12/23/2005 - 01/06/2006 with payday 01/10/2006
Take all payroll expenses in 2006 (Due - Feb 2006)

Thanks

[Unregistered]

... even though not paid until 2006 as this is an exception to cash basis rule?

I've heard this from other tax payers but I do not believe this is correct. You take the deduction WHEN paid, no exceptions.

[Gretel]

Payroll Taxes

Some time back we had a discussion on this board. Do a search and you should be able to find it.

[Bird Legs]

Gabriel

The original post said Payroll, not payroll taxes.
I say no, the corporation cannot deduct the payroll in December if it was paid in
January. You said this is a cash basis corporation.
If the corp. was on the accrual basis, then it could accrue the payroll that was due
as of December 31, but could not accrue any payroll that was due after December 31.

[Bees Knees]

In 2005:
Take expense for wages up to 12/22/05 (Last Payroll)
Take payroll taxes for Dec (Due in January 2006- Fed Tax, FICA, State Unemp etc.) in 2005 even though not paid until 2006 as this is an exception to cash basis rule?

The employee's portion of taxes withheld and FICA on the 12/22/05 payroll are deducted as gross wages paid in 2005, even though the employer does not forward those taxes to the government until 2006.

The employer's portion of the FICA tax on the 12/22/05 payroll is not deductible until 2006 because the employer is a cash basis taxpayer and the liability is the employer's liability, not the employee's.

See TTB example on page 18-20 and the line 12 explanation on page 18-24 and the line 17 explanation on page 18-25.

[OldJack]

employer portion of tax

I agree with Bees Knees that the employer matching portion of FICA and Medicare tax is not deductible on a pure cash basis, however, I do it all the time as a practical matter of software calculating and recording payroll expense. I have not had it questioned by an IRS auditor.

[JG EA]

Mental breakdown

It is important to mental sanity that the employer taxes and contributions be counted with the wages. Otherwise you are in an endless loop of frustration from year to year, you have sloppy payroll books to give to clients, you have such Office Chaos that it spills over into your tax work and you go out of business carried off in a straight jacket.