Question

Using his bank credit card, Manny, a cash method taxpayer, charged a business expense on December 5, 2017. He paid the credit card bill, which included the charge, on January 23, 2018. Can Manny deduct the expense in 2017?

1) True
2) False

Answer 1

Manny can deduct the business expense in 2017 as expenses are considered paid in the year they are charged to a credit card for a cash method taxpayer.

Step-by-step explanation:

The student's question revolves around whether Manny, a cash method taxpayer, can deduct a business expense in 2017 that he charged to his credit card in the same year but didn't pay off until January 2018. The answer to this question is True. Under the cash method of accounting, expenses are deductible in the year in which they are actually paid. Since Manny charged the expense in December 2017, it is considered paid in that year despite the credit card bill being paid later on January 23, 2018. Therefore, Manny can deduct the expense on his 2017 tax return.