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Alekssandra [29.7K]
3 years ago
6

self-employed cash basis taxpayer, took out a loan to use in her business. The loan principal is to be repaid on November 30 of

Year 3. Jones prepaid the entire interest of $12,000 on December 1 of Year 1. What amount of interest was deductible on Jones' Year 2 income tax return?
Business
1 answer:
koban [17]3 years ago
3 0

Answer: $6,000

Explanation:

Interest is deductible from Income tax but when interest to be paid is more than 12 months, the interest would need to be evenly spread over the period that they apply to. The total interest is $12,000 but the repayment period is 2 years. This means that the interest would need to be spread out over the 24 months involved at a rate of;

= 12,000/24

= $500

In Year 2 therefore, the relevant amount that can be deducted will be for 12 months;

= 500 * 12

= $6,000

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$112,500

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Cash Sales (120,000*25%                                            30,000

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Cash  Sales of September $30,000

Total cash expected to be collected in September =$112,500

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Based on the information given, it should be noted that since there's no anonymous reporting system, the minimum requirements for the protections of Federal Sentencing Guidelines isn't met by the company.

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