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My company gets a large bill from insurance company once per…

My company gets a large...
My company gets a large bill from insurance company once per year. My company is on accrual basis. The bill is not for a calendar year, but for period from April through March. Therefore if I enter the entire bill in the year received then it does not really follow the accrual method. Would it be appropriate to enter 4 quarterly bills in QB, instead of one annual bill received in reality? I pay the bill in one payment, but the expense would be spread to 2 tax years proportionally.
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Answered in 16 minutes by:
6/25/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,360
Experience: Taxes, Immigration, Labor Relations
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Generally, you cannot deduct or capitalize a business expense until economic performance occurs.

If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used.

An expense paid in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule.

Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following.
--12 months after the right or benefit begins, or
--The end of the tax year after the tax year in which payment is made.
If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. That would be classified as changing in Accounting Method.

So far - as long as you are using either method consistently - that is OK. But if you want to change - that woudl require IRS approval.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,360
Experience: Taxes, Immigration, Labor Relations
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