Question

1. Elise, a cash basis taxpayer, contracts with a cleaning service every six months. The service requires payment up front for the six-month contract. In December of Year 1, Elise pays $600 for cleaning service from January through June of Year 2. How much can Elise deduct in Year 1? Pro-rate the contract by month if needed.

. Larry went from Cleveland to New York on business. His time was spent as follows:

Thursday Travel
Frida y Business
Saturday and Sunday Sightseeing
Monday and Tuesday Business
Wednesday Travel

During the trip, Larry incurred and paid expenses of $180 per day for lodging from Thursday night through Tuesday night and $110 per day for meals. Round-trip airfare was $400. Larry is a selfemployed attorney who practices law in Cleveland. How much can Larry deduct for the New York trip?

Hint: there are 7 business days and 6 nights of stay

3. Mark has a great idea for business and investigates his idea. He spends $2,000 for a market survey and $2,200 for a feasibility study. After the investigation, he proceeds to establish the business in Year 1. He also has start-up expenses of $1,500 for pre-opening advertising. The business starts to operate on July 1, Year 1. Can much investigation and start-up expense can he deduct in Year 1?

Answer 1

Answer 1 -  cash basis taxpayers may be considering prepaying certain expenses in order to obtain relief from some of the Act’s provisions that eliminate or place limitations on tax deductions for taxable years beginning after December 31, 2017. For federal income tax purposes, cash basis taxpayers generally can take into account amounts representing allowable deductions in the taxable year in which paid. However, prepaying a 2018 liability or expense in 2017 without an obligation to do so is not a valid deduction, even for a cash basis taxpayer.Hence in such case Elise cannot claim deduction for pre paid expense made.

Answer 2 - In case of Larry as he is a selfemployed lawyer he can claim deduction for Business related travel as long as the travel is short term and travel is required for business and for this he has to claim proof of all his receipts and business information related to travel.

Answer 3 - Under IRS deduction for startup cost available in 1st year of business is $5000 and $5000 in organisational cost only ifyour total start up cost is upto $50000.

If your start-up efforts end in the creation of an active trade or business, then on your tax return for the year the business commences, the amount of expenses that you can deduct will be the lesser of:

1. your actual expenses with respect to the new business; or
2. $5,000, reduced by the amount by which the start-up expenditures with respect to the active trade or business exceed $50,000.

The remainder of your start-up expenditures is deducted ratably over the 180-month period beginning with the month in which the active trade or business begins.