Question

Maud, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2019, she leases an office building to use in her business for $197,250 for an 18-month period. To obtain this favorable lease rate, she pays the $197,250 at the inception of the lease.

How much rent expense may Maud deduct on her 2019 tax return? Round any calculations to two decimal places and round the final answer to the nearest dollar.

Answer #1

If a business is following the cash method for accounting and tax return purpose, then any expense paid in advance for over a year can be deducted only in the period or years to which those applies. All these expenses should be prorated over the period instead of deducting in full in the tax year in which it was paid in advance in cash. Thus the treatment here is exactly like capital expenditure, which is carried forward to the period for which the cash expense has been made.

The rent expense that Maud could deduct on her 2019 tax return would be the 11 months rent paid in cash out of 18 months rent paid in cash on Feb 1, 2019. So, on prorata-basis, the rent comes = 197250*11/18 = $120541.70.

Reese, a calendar-year taxpayer, uses the cash method of
accounting for her sole proprietorship. In late December, she
received a $19,000 bill from her accountant for consulting services
related to her small business. Reese can pay the $19,000 bill
anytime before January 30 of next year without penalty. Assume
Reese’s marginal tax rate is 32 percent this year and will be 37
percent next year, and that she can earn an after-tax rate of
return of 4 percent on her...

Reese, a calendar-year taxpayer, uses the cash method of
accounting for her sole proprietorship. In late December, she
received a $28,000 bill from her accountant for consulting services
related to her small business. Reese can pay the $28,000 bill
anytime before January 30 of next year without penalty. Assume
Reese’s marginal tax rate is 32 percent this year and will be 37
percent next year, and that she can earn an after-tax rate of
return of 12 percent on her...

Isabel, a calendar-year taxpayer, uses the cash method of
accounting for her sole proprietorship. In late December she
received a $30,000 bill from her accountant for consulting services
related to her small business. Isabel can pay the $30,000 bill
anytime before January 30 of next year without penalty. Assume her
marginal tax rate is 37 percent this year and next year, and that
she can earn an after-tax rate of return of 4 percent on her
investments.
a. What is...

Isabel, a calendar-year taxpayer, uses the cash method of
accounting for her sole proprietorship. In late December she
received a $44,000 bill from her accountant for consulting services
related to her small business. Isabel can pay the $44,000 bill
anytime before January 30 of next year without penalty. Assume her
marginal tax rate is 37 percent this year and next year, and that
she can earn an after-tax rate of return of 9 percent on her
investments.
a. What is...

Reese, a calendar-year taxpayer, uses the cash method of
accounting for her sole proprietorship. In late December, she
received a $35,000 bill from her accountant for consulting services
related to her small business. Reese can pay the $35,000 bill
anytime before January 30 of next year without penalty. Assume
Reese’s marginal tax rate is 32 percent this year and will be 37
percent next year, and that she can earn an after-tax rate of
return of 10 percent on her...

Isabel, a calendar-year taxpayer, uses the cash method of
accounting for her sole proprietorship. In late December she
received a $19,000 bill from her accountant for consulting services
related to her small business. Isabel can pay the $19,000 bill
anytime before January 30 of next year without penalty. Assume her
marginal tax rate is 32 percent this year and next year, and that
she can earn an after-tax rate of return of 6 percent on her
investments
1- What is...

a. Isabel, a calendar-year taxpayer, uses the cash method of
accounting for her sole proprietorship. In late December she
received a $20,000 bill from her accountant for consulting services
related to her small business. Isabel has plenty of cash in the
bank to cover the bill and can pay the $20,000 bill any time before
January 5 of next year without penalty. Assume her marginal tax
rate is 30 percent this year and next year, and that she can earn...

Hank, a calendar-year taxpayer, uses the cash method of
accounting for his sole proprietorship. In late December, he
performed $22,000 of legal services for a client. Hank typically
requires his clients to pay his bills immediately upon receipt.
Assume his marginal tax rate is 32 percent this year and will be 37
percent next year, and that he can earn an after-tax rate of return
of 5 percent on his investments.
a. What is the after-tax income if Hank sends...

Manny, a calendar-year taxpayer, uses the cash method of
accounting for his sole proprietorship. In late December he
performed $18,000 of legal services for a client. Manny typically
requires his clients to pay his bills immediately upon receipt.
Assume Manny’s marginal tax rate is 40 percent this year and next
year, and that he can earn an after-tax rate of return of 8 percent
on his investments.
a. What is the after-tax income if Manny sends
his client the bill...

55. Ashley (a single taxpayer) is the owner of ABC, LLC. The LLC
(a sole proprietorship) reports QBI of $900,000 and is not
a specified services business. ABC paid total W-2 wages of
$300,000, and the total unadjusted basis of property held by ABC is
$30,000. Ashley’s taxable income before the QBI deduction is
$740,000 (this is also her modified taxable income). What is
Ashley’s QBI deduction for 2019?

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