Saturday, January 26, 2008

Are all expenses deductible in the year they are paid?

Hi June,

I am a cartoonist from Parsippany, NJ --5 years.

I have 3 little questions that all seem to fall under the category of "Are all expenses deductible in the year they are paid?"

1) I usually pay my PO Box fees in the year I use the PO Box, but because of a rise in fees, the Post Office encouraged me to pay ahead, so I have paid for 18 months in 2007, but only used it for 12 months.

2) Advertising: I bought business cards, stickers, and other small items for advertising my business, including Holiday Cards (featuring my artwork). Is the total cost deductible as advertising, even if I have inventory left over? It will take me years to hand out a thousand business cards!

3) Software: I thought that you had mentioned somewhere that software had to be amortized over several years, but cannot find that reference now. Can I deduct the cost of software and software upgrades as supplies in the year purchased?

I truly appreciate your advice, and your time.

Thank you very much in advance,

Hi John,

Hello to Parsippany. I lived in NJ much of my life. And my husband covered Parsippany-Troy Hills for a local newspaper way back when.

As a cash-basis taxpayer, yes you may deduct all the expenses you question as current, in the year paid. At one time software had to be amortized -- cost spread over a number of years -- but no more. Take the cost as a supplies expense.

A reminder about cash-basis: It's income when you get it, not when you bill it. It's an expense when you pay it, not when you receive the bill.

Another reminder about December expenses: Paid by check or bank credit card, then it's considered paid regardless of when your check clears or when you pay your credit card.


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