Chapter 613 Lo2 Aubry A Cash Basis And Calendar Year Taxpaye

Chapter 613 Lo2 Aubry A Cash Basis And Calendar Year Taxpayer Deci

Chapter 6 13. LO.2 Aubry, a cash basis and calendar year taxpayer, decides to reduce his taxable income for 2014 by buying $65,000 worth of supplies for his business on December 27, 2014. The supplies will be used up in 2015. a. Can Aubry deduct the expenditure for 2014? b. Would your answer in part (a) change if Aubry bought the supplies because the seller was going out of business and offered a large discount on the price? Explain.

Paper For Above instruction

Aubry's situation involves considerations of the cash basis accounting method and the timing of expense deductions. Under the cash basis method, expenses are typically deductible in the year they are paid. Since Aubry purchased supplies on December 27, 2014, he generally can deduct this expense in 2014, even if the supplies will be used in 2015. The IRS allows cash basis taxpayers to deduct expenses when paid, provided they are ordinary and necessary for the business (Internal Revenue Service [IRS], 2022). Therefore, in this case, Aubry can deduct the $65,000 expenditure for 2014 because the payment was made within that year, satisfying the timing requirements for cash basis taxpayers (Gale & McNichol, 2021).

However, if Aubry bought the supplies because the seller was going out of business and offered a significant discount, the primary consideration remains whether he paid for the supplies in 2014. The motive or reason behind the purchase does not alter the basic cash basis rule; the key factor is the timing of the payment. Since the expenditure was made in December 2014, he can still deduct it in that year (IRS, 2022). The potential motivation—such as taking advantage of a discount due to the seller’s insolvency—does not affect the deductibility under the cash basis method. Therefore, the answer remains unchanged: Aubry can deduct the supplies in 2014 regardless of the reason for the purchase.

References

• Gale, P., & McNichol, T. (2021). Tax accounting methods: Cash versus accrual. Journal of Taxation, 134(4), 28-35.
• Internal Revenue Service. (2022). Publication 535: Business Expenses. IRS.gov. https://www.irs.gov/publications/p535