The end of the taxable year following the taxable year in which the payment is made.”Įxample: Grayson Corporation purchased an insurance policy on Octocovering Novemto October 31, 2016. Section 1-263(a)-4(f), taxpayers are not required to capitalize prepaid expenditures for “any right or benefit for the taxpayer that does not extend beyond the earlier of-ġ2 months after the first date on which the taxpayer realizes the right or benefit or There is an exception to that, however, in certain circumstances. So the general rule is that all prepaid expenses must be capitalized. If the insurance contract runs for a longer period, you need to take the deduction over time. Prepaid insurance premiums are deductible when paid as long as they don't apply to a period extending more than 12 months after the end of the taxable year when the payments were made. So even though the rent payment was for the next year, you should include this rental expense in the current year. As a cash-basis taxpayer, you report income as it is received.
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