Question

In January of year 0, Justin paid $4,800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting.

1. What amount of the insurance premium may Justin deduct in year 0 in the following scenario?
a) The policy covers the business property from April 1 of year 0 through March 31 of year 1.

Answer 1

$4,800

Step-by-step explanation:

The total amount of the premium can be deducted under the 12-month rule. The reason for this is that the insurance does not cover more than 12 months and can not cover any time that is outside the next year end.