On November 1 of year 0, Jaxon borrowed $50,000 from Bucksnort Savings and Loan

ID: 2776187 • Letter: O

Question

On November 1 of year 0, Jaxon borrowed $50,000 from Bucksnort Savings and Loan for use in his business.

In December, Jaxon paid interest of $4,500 relating to the 12-month period from November of year 0 through October of year 1.

How much interest, if any, can Jaxon deduct in year 0 if his business uses the cash method of accounting for tax purposes?

Deductible amount____

How much interest, if any, can Jaxon deduct in year 0 if his business uses the accrual method of accounting for tax purposes?

Deductible amount______

In December, Jaxon paid interest of $4,500 relating to the 12-month period from November of year 0 through October of year 1.

Cash method of accounting:

Interest deductible = $4,500

Accrual method of accounting:

Interest deductible = $750 ($4,500×2÷12)

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