Janine, a cash-basis taxpayer, borrowed $15,000 for her business from a local bank three years ago. To increase her deductions for 2018, she pays December interest of $150 and prepays January and February interest totaling $300. The maturity date of the note is November 30, 2019. How much of the interest is deductible in 2018?

Question

Quizplus · Accepted Answer

As a cash-basis taxpayer, Janine can only deduct expenses in the year they are actually paid. Therefore, she can deduct the $150 interest paid for December in 2018, but not the prepaid interest for January and February.

Janine, a Cash-Basis Taxpayer, Borrowed $15,000 for Her Business from a Local