Prepaid expenses

A prepaid expense is an expense you pay for ahead of time. Under the accrual method of accounting, claim any expense you prepay in the year or years in which you get the related benefit.

Example

Suppose your fiscal year-end is December 31, 2015. On June 30, 2015, you prepay the rent on your store for a full year (July 1, 2015, to June 30, 2016). You can only deduct one-half of this rent as an expense in 2015. You deduct the other half as an expense in 2016.

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