Question

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In January of year 0, Justin paid $7,800 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.

What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios? (Leave no answers blank. Enter zero if applicable.)

a. The policy covers the business property from April 1 of year 0 through March 31 of year 1.

c. Justin pays $9,000 for a 24-month policy that covers the business from April 1, year 0, through March 31, year 2. (Do not round intermediate calculations.)

d. Instead of paying an insurance premium, Justin pays $7,800 to rent his business property from April 1 of year 0 through March 31 of year 1.

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In October of year 0, Janine received a $15,520 payment from a client for 32 months of security services she will provide starting on September 1 of year 0. This amounts to $485 per month. Janine is a calendar-year taxpayer.

a. When must Janine recognize the income from the $15,520 advance payment for services if she uses the cash method of accounting?

• Year 2

• Year 1

• Year 1 and year 2

• Year 0 and year 1

• Year 0

Answer 1