When To Deduct An Expense

June,

I have very much enjoyed your posts and blogs and will be purchasing your book.

I have a question about inception vs separation. My accountant told me that I am able to claim expenses when I actually put an expense in service and that its independent of when they were actually purchased.

The example I'd like to speak of is my wife's business of a kennel. She has purchased animals in the year previous years but never claimed the expenses of those purchases. Recently some of these animals have passed on ( this I am calling separation ). Since they were not claimed on any returns prior is it acceptable to claim the loss now, even if it was several yrs back that they were put into service?

Best Regards,
Mark


Dear Mark,

For a cash basis business, you deduct an expense when incurred, meaning when you paid for it. You claim income when received.

I will assume your wife's business is cash-basis.

Equipment must be deducted -- when available for use in the business, not when it is used.

Supplies for general use -- when purchased.

Supplies for inventory -- depends on the kind of inventory method you have setup.

What your accountant is suggesting doesn't seem correct. All animals should be treated in the same way on the tax return. You may not pick and choose for your tax advantage.

Your accountant must do the research to get a definitive answer. If he is not already a member recommend http://www.natptax.com/. That organization is great with tax research.

Glad you like my posts. Thanks for letting me know.

Best,
June