I purchased a website subscription in 2021 but it is renewed till 2023. I am cash method accounting sch c file. Can I take the entire amount in 2021?

Yes, you can take the entire amount as a 2021 expense. As a cash-based business, you can use the expense when paid.

I read something about a 12 month rule saying the benefits can't extend beyond 12 months or next tax year. So I have to prorate it for 2021,2022, and 2023 right?

No. As @PattiF said, you paid it in 2021. It is a 2021 expense.

@ColeenD3 

So no I cannot deduct the whole thing in 2021? Confused with the responses I got. I found this link in community https://ttlc.intuit.com/community/business-taxes/discussion/where-should-i-claim-software-subscriptions-for-my-small-business/00/450960 

I found others also. So I cannot deduct the entire cost of website subscription in 2021 because it goes till 2023?

Yes, you are right. In general, you can't deduct prepaid expenses, but there are certain circumstances you can. From Nolo:

You may use the 12-month rule for business insurance premiums, business licenses, rents and leases, and payments to terminate business contracts. However, you may not use it for payments for interest, loans, and other financial interests, or purchases of furniture, equipment, and other long-term capital asset.

From Pub 538

Income 

Under the cash method, you include in your gross income all items of income you actually or constructively received during the tax year. If you received property and services, you must include their fair market value (FMV) in income.

Expenses 

Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. This includes business expenses for which you contest liability. However, you may not be able to deduct an expense paid in advance. Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules.

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Since it extends beyond the 12 months, it does not qualify for the 12-month rule. deduct it all in 2021.

What you paid for a 2 year subscription is fully deductible in the tax year you paid it. Now if you paid for 3 or more years, then you are right. But in this case we're not talking about something material. It's a subscription. Not a product. Not a service.

So I found pub 538 that says 12 month rule. Does that mean if the subscription goes over 12 months it has to be prorated?

No, you will deduct the entire amount of the subscription in 2021

But according to irs Irs website I have to prorate it. Can you tell me why I don't? Just trying to get better understanding 

Publication 538 states that if you did not start your business using the 12-month rule then you cannot change your Accounting Method without IRS approval.  I know you have operated at least in 2020 as well, from your other post I helped you on.  So, even if you did not have any multi-year expenses before, you have already reported you are reporting on the Cash Method (plus you started this thread with that information).  Electing the 12-month rule makes you an Accrual Method business and requires IRS approval for the change in method.

You do not want that hassle!  So, the proper treatment of your website renewal, is to report the cash you paid in full in 2021.

@confusedabouttaxes23

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@confusedabouttaxes23 wrote:

So I found pub 538 that says 12 month rule. Does that mean if the subscription goes over 12 months it has to be prorated?

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All of these so-called "tax experts" have no idea what they are talking about.  They really should NOT be answering questions that they don't know.

As you pointed out, your expense covers more than 12 months.  That means you need to prorate the amount, and only deduct the portion that applies to 2021.

@AmeliesUncle 

Do I have to file form 3115 too because I don't want to change my accounting method from cash. Can I just prorate this? All my other expenses for email packages etc are 1 year from date of purchase. This was a 2 year deal. So they all fit the 12 month rule as their terms are one year

No, well, probably not.

Form 3115 would only be used if you were doing it differently (probably wrong) for at least two consecutive years.   For example, let's say that in both 2019 and 2020 you had a similar thing that you paid for something that extended past 12 months, but you incorrectly deducted the full cost in one year.    In that scenario, you might need to file Form 3115 to 'correct' things and change to doing it right for 2021.  But assuming that is not the case, no Form 3115 is needed.

Ok.  We have lost control on this question:

• I agree with @AmeliesUncle 
• As stated, in general, as a cash method taxpayer you deduct the expense when paid.
• There are exceptions for prepaid items and there is the 12-month rule.
• Cash-method taxpayers are not required to capitalize prepaid expenses that create a benefit that expires on or before the earlier of (1) 12 months after the first day on which the taxpayer realizes the benefit of the expense or (2) the end of the tax year after the year payment is made.
• Since your subscription falls outside of that 12-month period exception, you do not qualify to expense the entire amount in 2021.  You can only take a prorated amount related to the number of months in 2021.
• No change in accounting method needs to be done.

@Rick19744 @AmeliesUncle 

My business bills have been mostly monthly or one year from date of purchase like August 2021 to August 2022 for example. I don't pay in advance because too much money upfront. When I first begin irs said cash people deduct expenses when they paid them so I went with that. I did not know about this rule. I didn't know about prorating end of year. I thought cash method means pay bill that covers a year and your paid expenses for that year. I thought prorating is for accural method pay bill in one year and keep prorating till next year. Cash method says deduct bills in year you pay them. So I don't need to file form 3115 because I don't want to change accounting method. Since my bills in 2019 and 2020 have been 1 year or less i.e. August 2019 to August 2020 means I dont need to file 3115 right because I did not prorate them from the beginning?

Correct.

@AmeliesUncle 

So in the beginning when I first began which was a while ago and I took expenses as I got them i.e. August 2019 to August 2020 I automatically accepted the 12 month rule right? Without ofcourse knowing i did. When I first began I talked to irs as these support did not exist so they never mentioned this rule. They said in the year it was paid. I thought that made sense. So basically now I don't need to fill out form 3115 right ?