Question

On Dec. 15, 2018, Julie’s Tax Prep, a cash-method taxpayer, prepaid $3,000 worth of deductible interest on a business loan. The interest won’t accrue until January 2019.

Julie’s Tax Prep will be displaying for the first time at a trade show in July 2019. On Dec. 16, 2018, Julie’s prepaid the $6,000 trade show booth rental expense. The payment isn’t due until May 2019, and use of the booth will occur in July 2019.

In addition, On Dec. 28, 2018, Ed’s Equipment repaired some equipment in Julie’s office and billed Julie’s $5,000. Julie’s received the invoice on Dec. 28, 2018 and paid the $5,000 invoice on Jan. 29, 2019.

How much of the $14,000 in deductible business expenses may Julie’s Tax Prep deduct in 2018?

Answer 1

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Solution: Answers is highlighted in yellow $ Answer 9,000 Explanation: For prepaid expense, If 12 months rules apply then prepaid expense can be deducted in the current period. In this case, $3,000 $6,000 Prepaid Interest expense is deductible Prepaid rent expense is deductible Cash was paid in the next year Deductible business expenses Julie's Tax Prep may deduct in 2018 9,000