Question

5.Jeremy is a calendar-year taxpayer who sometimes leases his business equipment to local organizations. He recorded the following receipts this year: $840 from the Ladies’ Club for leasing the trailer from December of this year through March of next year ($210 per month). How much of this payment is taxable income to Jeremy this year if Jeremy is a cash-method taxpayer?

6.Jeremy is a calendar-year taxpayer who sometimes leases his business equipment to local organizations. He recorded the following receipts this year: $500 lease payment received from the Men’s Club this year for renting Jeremy’s trailer last year. Jeremy billed them last year. How much of this payment is taxable income to Jeremy this year if Jeremy is an accrual-method taxpayer?

7.In January of year 0, Justin paid $6,800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. The policy covers the business property from April 1 of year 0 through March 31 of year 1.   What amount of the insurance premium may Justin deduct in year 0?

8.In January of year 0, Justin paid $6,800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. The policy begins on February 1 of year 1 and extends through January 31 of year 2. What amount of the insurance premium may Justin deduct in year 0?

Answer 1

5.

Jeremy is a calendar taxpayer

He received $840 for leasing his trailer

Taxable income to Jeremy if he follows cash-method:

As per the cash method, the entire amount is taxable as and when it is received by the assessee not when it is accrued.

Therefore, the entire amount of $840 is taxable.

6.

As per the accrual method, income computed on accrual basis that is as and when such amount is but not when it was received.

Since the amount was already billed last year, Jeremy could have already paid tax on such income because he is following the accrual method.

Therefore, the taxable portion of the amount received is $0

7.

Justin paid the insurance premium during January of the Year 0

The policy covers from April, Year 0 to March year 1

The 12-month rule can be applied in this case.

as per the rule, the entire premium paid for the policy will be deducted if the tenure of the policy is not more than 12 months and the benefit of the policy does not extend beyond next year.

Therefore, the entire insurance premium amount of $6,800 is deductible.

8.

The policy covers from February 1, Year 1 to January 31, year 2

As per the 12-months rule, the entire premium paid for the policy will be deducted only if the tenure of the policy is not more than 12 months and the benefit of the policy does not extend beyond next year.

But, in the given case, even though the policy term is 12 months, the benefit of the policy spreads beyond the end of the next year.

The 12-month rule can not be applied in this case.

Hence, the amount deductable for the current year is '0'