Under the 12-month rule for the current-period deduction of prepaid expenses of cash basis taxpayers, the asset must expire or be consumed by the end of the tax year following the year of payment.

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Under the 12-month rule, prepaid expenses can be deducted in the current year if they expire or are consumed by the end of the tax year following the year of payment. This applies to cash basis taxpayers who are individuals or entities with average annual gross receipts not exceeding $26 million for the three preceding tax years.

Under the 12-Month Rule for the Current-Period Deduction of Prepaid