Question

Peter Smith International (PSI) has average annual gross receipts of $52 million annually. This year, PSI earned $3 million of business interest income, incurred $8 million of business interest expense and has adjusted taxable income of $13 million. Compute PSI's current deduction for business interest and the amount of any business interest carryforward. (Enter your answers in dollars not in millions of dollars.)

Business interest deduction
Business interest carryforward

Answer 1

Business Interest Expenses is allowed as deduction but there are certain rules regarding which 30% of the adjusted taxable income is allows in the current year

The business interest expenses deduction allowed up to the 30% of adjusted taxable income which is $13 million and rest is disallows for that year and the rest business interest expenses is carry forward to the next year

Transactions	Amount (In Dollars)
Business interest Expenses is adjusted up to the 30% of the Adjusted taxable income $3.9 million ($13 million * 30%)	$3,900,000
Balance Business interest Expenses carry forward ($8 million - $3.9 million)	$4,100,000

So, current deductions for the business interest expenses is $3,900,000 and the rest is $4,100,000