Joe’s Cross Fit, an accrual-method taxpayer, provides personal training services

Question

Joe’s Cross Fit, an accrual-method taxpayer, provides personal training services. On Dec. 1, Y1, Barbie pays Joe’s Cross Fit $2,400 cash for 24 months of personal training services ($100/month). Barbie’s training sessions beginning on Dec. 1, Y1. For tax purposes, how much of the $2,400 must Joe’s Cross Fit include in gross income in Y2 if Joe’s elects to defer prepaid income to the maximum extent possible?

Note: For financial accounting purposes, Joe’s Cross Fit will recognize $100 in income Y1, $1,200 in income Y2, and $1,100 in income Y3. Make sure you understand how the prepaid services income rules for an accrual method taxpayer will result in a book/tax difference in this example.

Explanation / Answer

Answer:

Given data,

For every month joe's will notice $100 income.

Therefore ,

Number of months in year(Y1)=12

so, income of joe,

s =12*$100=$1200.

Hence this was also happen in last year

so the income of joe's in last year i= $100 *12=$1200.

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