Bart operates a sole proprietorship for which he uses the accrual method of accounting.Bart's sister Samantha,a cash method taxpayer,did some advertising work for Bart's business in November 2013.In December,Bart received a billing statement from Samantha for $5,000.Bart paid Samantha the $5,000 in January 2014.Samantha is a calendar year taxpayer.When may Bart deduct the $5,000?

Question

Quizplus · Accepted Answer

Under the accrual method of accounting, business expenses are deductible in the year in which they are incurred, even if payment is made in a subsequent year. In this case, the advertising work was done in November 2013, so the expense was incurred in 2013. However, since Bart paid Samantha in January 2014, he may only deduct the $5,000 in 2014, when the payment was actually made. The fact that Samantha is Bart's sister does not prevent the expense from being deductible.

Bart Operates a Sole Proprietorship for Which He Uses the Accrual