Question

Rebecca incurred a business expense on December 10, 2017, which she charged on her bank credit card. She paid the credit card statement which included the charge on January 5, 2018. Which of the following is correct?

1) If Rebecca is a hybrid method taxpayer, she cannot deduct the expense at all.
2) If Rebecca is a cash method taxpayer, she cannot deduct the expense until 2018.
3) If Rebecca is an accrual method taxpayer, she can deduct the expense in 2017.
4) If Rebecca uses the accrual method, she can choose to deduct the expense in either 2017 or 2018.
5) All of these choices are correct.

Answer 1

The correct options are 2 and 3, indicating that Rebecca can deduct the expense in 2018 if she is a cash method taxpayer, and in 2017 if she is an accrual method taxpayer.

Options 1, 4, and 5 are incorrect.

Step-by-step explanation:

When it comes to deducting business expenses, the timing depends on the taxpayer’s accounting method. In the scenario provided, if Rebecca is a cash method taxpayer, she would only be able to deduct the expense in the year it was paid. Therefore, she could deduct the expense in 2018 when she paid the credit card statement. If Rebecca is an accrual method taxpayer, she can deduct the expense in the year it was incurred, which would be 2017 in this case, regardless of when it was paid.

Hence, the correct option is: 2) If Rebecca is a cash method taxpayer, she cannot deduct the expense until 2018, and 3) If Rebecca is an accrual method taxpayer, she can deduct the expense in 2017.

Options 1 and 4 are not correct because hybrid method taxpayers follow specific rules that pertain to their chosen system of accounting, which does generally not allow for flexibility in choosing the deduction year, and the expense would need to follow accrual or cash method principles respectively. Option 5 is also not correct since 1 and 4 are incorrect, meaning not all choices can be correct.