Question

Meghan, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2020, she leases an office building to use in her business for $157,350 for an 18-month period. To obtain this favorable lease rate, she pays the $157,350 at the inception of the lease.

How much rent expense may Maud deduct on her 2020 tax return? Round any calculations to two decimal places and round the final answer to the nearest dollar.
$

Answer 1

Meghan Sole Proprietorship

The rent expense that Meghan may deduct on her 2020 tax return is:

= $96,158.

Step-by-step explanation:

a) Data and Calculations:

February 1, 2020: Rent Expenses $157,350 Cash $157,350

Rent Expenses for 2020 = $157,350 * 11/18 = $96,158

b) The actual cash payment for rent should be prorated to the months in 2020 for which the rent was consumed. This gives 11 months (from February 1, 2020 to December 31, 2020).