A calendar year, cash basis corporation began business on April 1, 2012, and paid $2,400 for a 24-month liability insurance policy. An accrual basis, calendar year taxpayer also began business on April 1, 2012, and purchased a 24-month liability insurance policy. Both the cash basis and accrual basis taxpayers' deduction for insurance expense on the policy for 2012 is $900 (9/12 ´ $1,200).

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The cash basis taxpayer can only deduct the amount actually paid in 2012, which is $2,400. The accrual basis taxpayer can deduct the portion of the insurance policy that applies to 2012, which is $900 (9 months of coverage from April to December).

A Calendar Year, Cash Basis Corporation Began Business on April