Joe is a self-employed electrician who operates his business on the accrual method. This year Joe purchased a shop for his business, and for the first time at year-end he received a bill for $4,500 of property taxes on his shop. Joe didn't pay the taxes until after year-end but prior to filing his tax return. Which of the following is a true statement?
A)If he elects to treat the taxes as a recurring item, Joe can accrue and deduct $4,500 of taxes on the shop this year.
B)The taxes are a payment liability.
C)The taxes would not be deductible if Joe's business was on the cash method.
D)Unless Joe makes an election, the taxes are not deductible this year.
E)All of the choices are true.

Question

Quizplus · Accepted Answer

All the statements provided are true regarding the situation. Under the accrual method, Joe can accrue and deduct the property taxes in the year they are incurred if he treats them as a recurring item. The taxes are indeed a payment liability. If Joe's business were on the cash method, the taxes would not be deductible until paid. Without making an election to treat the taxes as a recurring item, they would not be deductible in the year incurred but rather when paid.

Joe Is a Self-Employed Electrician Who Operates His Business on the Accrual