Mary, who uses the calendar year as her taxable year, owns a coffeeshop. She purchases insurance coverage
Question:
Mary, who uses the calendar year as her taxable year, owns a coffeeshop. She purchases insurance coverage that protects against damage to the building, as well as personal liability coverage in case a customer sues. Instead of paying for coverage monthly, Mary pays the entire contract amount on September 1 of Year 1. Can Mary deduct her payment as an expense under § 162 in the year of payment, or must she capitalize the cost under § 263, instead?
a. On September 1 of Year 1, she pays $12,000 for 24-month coverage, effective on that date and extending to August 31 of Year 3? See Treas. Reg. § 1.263(a)-4(f)(1).
b. On September 1 of Year 1, she pays $6,000 for 12-month coverage, effective on that date and extending to August 31 of Year 2?
c. On September 1 of Year 1, she pays $6,000 for 12-month coverage, effective February 1 of Year 2 and extending to January 31 of Year 3?
d. Same as b., except that the contract has a renewal clause that entitles Mary to renew the contract for a second 12-month period at the same price? See Treas. Reg. § 1.263(a)-4(f)(5).
Federal Taxation 2015 Corporations Partnerships Estates & Trusts
ISBN: 9780133822144
28th edition
Authors: Thomas R. Pope , Timothy J. Rupert, Kenneth E. Anderson