I work for a small Multi-Member LLC providing consulting services (to the Government) in California. As a new LLC, we are currently using cash-basis accounting but may switch to accrual-basis in the future. Employees accrue 1.25 days of PTO each month.
If an employee accrues 15 days of PTO in a year and ends up using zero days of PTO that year, the LLC has to carry the monetary value of PTO liability to the following year (we'll say it's $10,000). At the end of the year, will the $10,000 then get taxed (since we're using cash-basis since we can't account for it as a PTO payable and the cost isn't incurred until the employee takes PTO) or is the LLC able to set the $10,000 aside without taxes, since it is an expense we will have to pay in a later year?