Angela is an accrual basis taxpayer. On September 1 of the current year, she prepays the annual premium of $4,800 for a one-year fire insurance policy on the contents of her business warehouse. The expense is not material for either financial or tax purposes. The prepayment is necessary to activate the insurance coverage and maintain annual renewals. How much may Angela deduct in the current year?
A)$- 0 -
B)$ 400
C)$1,600
D)$2,400
E)$4,800

Question

Quizplus · Accepted Answer

Since Angela is an accrual basis taxpayer and the prepayment of the insurance premium is not material, she can deduct the full amount of the insurance premium ($4,800) in the current year.

Angela Is an Accrual Basis Taxpayer