Question

Vernon is a cash basis taxpayer with a calendar tax year. on october 1, 2016, vernon entered into a lease to rent a building for use in his business at $3,000 a month. on that day vernon paid 18 months rent on the building, a total of $54,000 ($3,000 × 18 months). how much may vernon deduct for rent expense on his 2016 tax return?

Answer 1

$9,000

Step-by-step explanation:

Vernon can only deduct the actual lease expenses incurred during 2016, and that is only three months: October, November and December.

= 3 months x $3,000 per month = $9,000

This logic applies to every expense that is paid in advance, you can only deduct payments that apply for the current tax year.