Tax Question Forum

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This is going to seem like the silliest question, but the rules of capitalization v. deduction apply without regard to your chosen method of accounting (cash or accrual), right? All the method does is decide when you recognize the expense/income. But regardless of when you recognize, the capitalization/deduction rules apply. That's my understanding. Can anyone confirm?

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Generally you're right. Things get tricky when you're talking about just 12 months. Zaninovich (sp) applied the 12-month rule to cash taxpayers and then US Freightways applied it to accrual as well. But I think the regs then exclude that for something that would ordinarily be renewed and is not subject to renegotiation upon renewal. The regs also allow for a taxpayer to capitalize what would otherwise be deductible under the 12-month rule.

(I could be totally wrong... Fed income tax final was 4.5 months ago.)

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Actually no I was wrong. But thanks.