skip navigation

Search Help
Navigation Help

Topic Index
ABCDEFGHI
JKLMNOPQR
STUVWXYZ#

FAQs
Forms
Publications
Tax Topics

Comments
About Tax Map

IRS.gov Website
Publication 550
taxmap/pubs/p550-019.htm#en_us_publink100010299

When To Report Investment Expenses(p37)

rule
If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them.
If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them.
Also see When To Deduct Investment Interest, earlier in this chapter.
taxmap/pubs/p550-019.htm#en_us_publink100010300

Unpaid expenses owed to related party.(p37)

rule
If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person.
This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions. It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders.
The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to original issue discount (OID), regardless of when payment is made. This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made.