E 2 Kevin, a calendar-year taxpayer, utilizes the cash method of accounting for his small business, which provides various consulting 3 expertise to the railroad industry. At the end of the year, he spent significant time working on a consulting project for Regional Railroad's 4 light rail replacement initiative. Although the project is not done, Regional Railroad's project manager knows Kevin spent a significant 5 amount of time and wants to get Kevin paid before year-end. As such, he told Kevin he may issue a progress billing for time incurred to 6 date. However, Kevin expects the project to wrap up within the first week of the new year, and is concerned of the tax implications of 7 including the income on his current year tax return. Kevin has asked his nephew, a tax consultant, for some advice. Kevin has spent 120 8 hours on the project to date with a billing rate of $100/hour; his after-tax rate of return is 12% and his marginal tax rate is 28%. 9 10 11 Required: 12 1. Prepare a Present Value Comparison using PV formulas 13 14 (HINT: Do not enter an amount for PMT in the PV formula as there are no cash flows involved with this tax liability; instead, use FV) 15 16 Present Value Comparison
E 2 Kevin, a calendar-year taxpayer, utilizes the cash method of accounting for his small business, which provides various consulting 3 expertise to the railroad industry. At the end of the year, he spent significant time working on a consulting project for Regional Railroad's 4 light rail replacement initiative. Although the project is not done, Regional Railroad's project manager knows Kevin spent a significant 5 amount of time and wants to get Kevin paid before year-end. As such, he told Kevin he may issue a progress billing for time incurred to 6 date. However, Kevin expects the project to wrap up within the first week of the new year, and is concerned of the tax implications of 7 including the income on his current year tax return. Kevin has asked his nephew, a tax consultant, for some advice. Kevin has spent 120 8 hours on the project to date with a billing rate of $100/hour; his after-tax rate of return is 12% and his marginal tax rate is 28%. 9 10 11 Required: 12 1. Prepare a Present Value Comparison using PV formulas 13 14 (HINT: Do not enter an amount for PMT in the PV formula as there are no cash flows involved with this tax liability; instead, use FV) 15 16 Present Value Comparison
Chapter5: Gross Income: Exclusions
Section: Chapter Questions
Problem 30P
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Question
Transcribed Image Text:C23
B
2 Kevin, a calendar-year taxpayer, utilizes the cash method of accounting for his small business, which provides various consulting
3 expertise to the railroad industry. At the end of the year, he spent significant time working on a consulting project for Regional Railroad's
4 light rail replacement initiative. Although the project is not done, Regional Railroad's project manager knows Kevin spent a significant
5 amount of time and wants to get Kevin paid before year-end. As such, he told Kevin he may issue a progress billing for time incurred to
6 date. However, Kevin expects the project to wrap up within the first week of the new year, and is concerned of the tax implications of
including the income on his current year tax return. Kevin has asked his nephew, a tax consultant, for some advice. Kevin has spent 120
hours on the project to date with a billing rate of $100/hour; his after-tax rate of return is 12% and his marginal tax rate is 28%.
7
8
X✓ fx =PV(0.12,1,0,-3360,0)
9
10
11 Required:
12 1. Prepare a Present Value Comparison using PV formulas
13
14 (HINT: Do not enter an amount for PMT in the PV formula as there are no cash flows involved with this tax liability; instead, use FV)
15
16
17
18 Time Incurred (hours)
19 Hourly Billing Rate
20 Taxable Income
Description
21 Marginal Tax Rate
22 Tax Liability
23
Present Value Tax Liability
Present Value Comparison
Option 1:
Option 2:
Receive Payment Before Receive Payment After
12/31
12/31
120.00
$100.00
$12,000.00
28%
$3,360.00
$3,360.00
120.00
$100.00
$12,000.00
E
28%
$3,360.00
$3,000.00
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