When is the current year business interest expense considered deductible by Tern, Inc.?

The correct choice is based on the business interest expense deduction rules outlined in the Internal Revenue Code. For businesses, interest expenses are generally deductible, but there are limitations in place to prevent excessive interest deductions that could reduce taxable income disproportionately.

Specifically, the Tax Cuts and Jobs Act introduced a limitation on the amount of business interest that can be deducted. A business can deduct its interest expense only up to a certain threshold, generally calculated as 30% of the business's adjusted taxable income. This means that Tern, Inc. can deduct its current year business interest expense only if it does not exceed this limit as defined by the tax code.

This provision encourages businesses to manage their debt levels responsibly and ensures that the tax benefits associated with interest expenses are aligned with the business's income generation capacity. If Tern, Inc. had an interest expense that surpassed this limit, any amount over the limit could not be deducted in the current year but might be carried forward to future years.

In contrast, the other options do not align with the established tax rules on interest deductions. A stipulating deductions only for payroll expenses or based on total gross receipts does not reflect the specific regulatory framework governing business interest expenses. Additionally, limiting deductions to cases of floor plan financing is