4. Amy is a calendar-year taxpayer reporting on the cash basis. Please indicate

Question

4. Amy is a calendar-year taxpayer reporting on the cash basis. Please indicate how she should treat the following items for 2016: a. She makes a deductible contribution to an IRA on April 15, 2017. b. She has made an election to accrue the increase in value of savings bonds even though the increase is not received in cash. c. She prepays half a year of interest in advance on her mortgage on the last day of d. She pays all of her outstanding invoices for standard business expenses in the last e. She sends out a big bill to a customer on January 1, 2017, even though she did all week of December of the work in December of 2016.

Explanation / Answer

here the calender year means ending 31st december 2016.

1) under cash method we recognise expenses only we have to pay the same socontribution to IRA on 27 th april is not shown in 2016 calender year.

2) under the cash method of accounting we recognised income we actually receive or constructly receive.so the interest income not actually received so we are not recognise as income

3)prepaid expenses are also not included so mortgage loan payment also does not aqualified expendirure.

4) expenses actually paid can treat as a expenses.outstanding dues are eligible expenditure.

5) bill raised in january but payment received in which period is considered so this income also not included.

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