Becky is a cash basis taxpayer with the following transactions during her calendar tax year: $\begin{array}{llcc}
\text { Cash basis revenue} & \$54,000 \
\text {Cash basis expenses, except rent } &25,000\
\text {Rent expense (paid on December 1) for use of a building for 24 months } &24,000\
\end{array}$
What is the amount of Becky's taxable income from her business for this tax year?
A)$7,000 loss
B)$11,000
C)$27,500
D)$28,000
E)None of the above

Question

Becky is a cash basis taxpayer with the following transactions during her calendar tax year: $\begin{array}{llcc}
  \text { Cash basis revenue} & \$54,000 \
 \text {Cash basis expenses, except rent  } &25,000\
 \text {Rent expense (paid on December 1) for use of a building for 24 months  } &24,000\
\end{array}$
 What is the amount of Becky's taxable income from her business for this tax year?
A)$7,000 loss
B)$11,000
C)$27,500
D)$28,000
E)None of the above

Quizplus · Accepted Answer

Becky is a cash basis taxpayer, which means she reports income when it is received and deducts expenses when they are paid.

Cash basis revenue = $54,000
Cash basis expenses (except rent) = $25,000

For rent expense, since it was paid on December 1 for use of the building for 24 months, she can only deduct $1,000 as an expense in the current tax year (\$24,000 ÷ 24 months) since the remaining $23,000 will be deducted over the next 2 tax years.

Therefore, her taxable income from her business will be:
$54,000 (revenue) - $26,000 (expenses: $25,000 + $1,000 rent) = $28,000

So the correct answer is (D) $28,000.

Becky Is a Cash Basis Taxpayer with the Following Transactions