Murphy uses the accrual method and reports on a calendar year. This year Murphy signed a binding contract to provide consulting services to Kirby beginning next year. Murphy incurred $15,000 to train his staff for this particular project. In addition, Murphy estimates that he will incur another $60,000 to complete the Kirby contract. What amount, if any, can Murphy deduct this year for the services expected to be rendered next year?
What will be an ideal response?
$15,000.
Unless the services are rendered, Murphy can only deduct costs actually incurred, $15,000. The remainder is not deductible until next year because of economic performance.
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