Hello,
If a cash basis sole proprietor business owner sells his business in December 2015 but pays some expenses (being on cash basis) in January 2016, when are these expenses booked? Isn't the business's books closed in December 2015 so there is no booking in 2016? So those expenses go un-booked? The closing is reflected in 2015 tax return on Schedule C and Capital Gain on schedule D, correct? There is no schedule C tax filing in 2016, correct?
Thank you in advance for your help.
Wrong. If there are expenses of the business in 2016, they are claimed on a 2016 Schedule C. If there are expenses of the _sale_ in 2016, and the sale is reported on form 4797 or Schedule D, then those are capital expenses of some sort. I'm heading off, shortly, so I don't have time to research the details of the latter case.
-- Arthur L. Rubin CRTP, AFSP, in Brea, CA
Thanks for the reply. I am thinking the expenses got paid in 2016 but the business got closed in 2015 so the business does not exist in 2016. What then happens to those expenses paid in 2016?
A business, even when closed, is allowed to continue its technical existence to complete whatever it needs to do. Paying bills after a business is closed will qualify. Even if the business is no longer in existence, payments were made for the business, and they are allowed to be deducted in the year paid.
Thanks for the reply Stuart.
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