A calendar year, cash basis corporation began business on April 1, 2018, and paid $2,400 for a 24-month liability insurance policy. An accrual basis, calendar year taxpayer also began business on April 1, 2018, and purchased a 24- month liability insurance policy. The accrual basis taxpayer must amortize the premiums over 24 months but the cash basis taxpayer may deduct the total premiums in 2018.

Question

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A cash basis taxpayer can only deduct expenses in the year they are paid if they apply to that year. Since the insurance policy covers 24 months, the cash basis taxpayer must allocate the expense over the period it covers, not deduct it all in 2018.

A Calendar Year, Cash Basis Corporation Began Business on April