Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December, she received a $20,000 bill from her accountant for consulting services related to her small business. Reese can pay the $20,000 bill anytime before January 30 of next year without penalty. Assume Reese's marginal tax rate is 32 percent this year and 35 percent next year, and that she can earn an after- tax rate of return of 12 percent on her investments. Required: a. What is the after-tax cost if she pays the $20,000 bill in December? b. What is the after-tax cost if she pays the $20,000 bill in January? Use Exhibit 3.1. c. Should Reese pay the $20,000 bill in December or January? d. What is the after-tax cost if she expects her marginal tax rate to be 24 percent next year and pays the $20,000 bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. e. Should Reese pay the $20,000 bill in December or January if she expects her marginal tax rate to be 32 percent this year and 24 percent next year? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E What is the after-tax cost if she pays the $20,000 bill in January? Use Exhibit 3.1. After-tax cost
Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December, she received a $20,000 bill from her accountant for consulting services related to her small business. Reese can pay the $20,000 bill anytime before January 30 of next year without penalty. Assume Reese's marginal tax rate is 32 percent this year and 35 percent next year, and that she can earn an after- tax rate of return of 12 percent on her investments. Required: a. What is the after-tax cost if she pays the $20,000 bill in December? b. What is the after-tax cost if she pays the $20,000 bill in January? Use Exhibit 3.1. c. Should Reese pay the $20,000 bill in December or January? d. What is the after-tax cost if she expects her marginal tax rate to be 24 percent next year and pays the $20,000 bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. e. Should Reese pay the $20,000 bill in December or January if she expects her marginal tax rate to be 32 percent this year and 24 percent next year? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E What is the after-tax cost if she pays the $20,000 bill in January? Use Exhibit 3.1. After-tax cost
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter10: Individuals: Income, Deductions, And Credits
Section: Chapter Questions
Problem 22P
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Transcribed Image Text:Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole
proprietorship. In late December, she received a $20,000 bill from her accountant for
consulting services related to her small business. Reese can pay the $20,000 bill
anytime before January 30 of next year without penalty. Assume Reese's marginal tax
rate is 32 percent this year and 35 percent next year, and that she can earn an after-
tax rate of return of 12 percent on her investments.
Required:
a. What is the after-tax cost if she pays the $20,000 bill in December?
b. What is the after-tax cost if she pays the $20,000 bill in January? Use Exhibit 3.1.
c. Should Reese pay the $20,000 bill in December or January?
d. What is the after-tax cost if she expects her marginal tax rate to be 24 percent next
year and pays the $20,000 bill in January? Use Exhibit 3.1.
Note: Round your answer to the nearest whole dollar amount.
e. Should Reese pay the $20,000 bill in December or January if she expects her
marginal tax rate to be 32 percent this year and 24 percent next year?
Complete this question by entering your answers in the tabs below.
Required A Required B Required C
Required D
Required E
What is the after-tax cost if she pays the $20,000 bill in January? Use Exhibit 3.1.
After-tax cost
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