Question

On Dec. 15, 2018, Jack’s Tax Prep, a cash-method taxpayer, prepaid $5,000 worth of deductible interest on a business loan. The interest won’t accrue until January 2019.

Jack’s Tax Prep will be displaying at a tradeshow in January 2019. On Dec. 16, 2018, Jack’s prepaid the $4,000 trade show booth rental expense. Use of the booth will occur in January 2019.

In addition, On Dec. 28, 2018, Ed’s Equipment repaired some equipment in Jack’s office and billed Jack’s $2,000. Jack’s received the invoice on Dec. 28, 2018 and paid the $2,000 invoice on Jan. 29, 2019.

How much of the $11,000 in deductible business expenses may Jack’s Tax Prep deduct in 2018?


In addition to the $11,000 in expenses, in Dec. 2018, Jack’s prepaid two years’ worth of office rent ($4,000/month * 24 months = $96,000). The rent covers Jan. 1, 2019 through Dec. 31, 2020. How much of the $96,000 prepaid rent can Jack’s deduct in 2018?


Instead, Jack’s only prepaid six months’ worth of office rent ($4,000/month * 6 months = $24,000) in Dec. 2018. The rent covers Jan. 1, 2019 through June. 30, 2019. How much of the $24,000 prepaid rent can Jack’s deduct in 2018?

Answer 1

Last question, answer is 24K, before last, answer is 0.

Answer 2

Step-by-step explanation:

There are three questions, I am providing their answers in sequence.

Q-1: How much of the $11,000 Jack’s Tax Prep deduct in 2018?

As Jack has prepaid all of the $11000 ( $5000 + $4000 + $2000) in 2018, hence all expenses were deducted in 2018.

Q-2: Of the $96,000, how much prepaid rent Jack can deduct in 2018?

All of the $96000 were prepaid in 2018, hence complete amount can be deducted.

Q-3: Of the $24,000, how much prepaid rent Jack can deduct in 2018?

All of the $24000 were prepaid in 2018, hence complete amount can be deducted.