Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $29,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $29,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and 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 Isabel pays the $29,000 bill in December? b. What is the after-tax cost if Isabel pays the $29,000 bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. c. Based on requirements a and b, should Isabel pay the $29,000 bill in December or January?

SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter17: Business Tax Credits And The Alternative Minimum Tax
Section: Chapter Questions
Problem 15P
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Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a
$29,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $29,000 bill anytime before
January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and 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 Isabel pays the $29,000 bill in December?
b. What is the after-tax cost if Isabel pays the $29,000 bill in January? Use Exhibit 3.1.
Note: Round your answer to the nearest whole dollar amount.
c. Based on requirements a and b, should Isabel pay the $29,000 bill in December or January?
Transcribed Image Text:Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $29,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $29,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and 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 Isabel pays the $29,000 bill in December? b. What is the after-tax cost if Isabel pays the $29,000 bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. c. Based on requirements a and b, should Isabel pay the $29,000 bill in December or January?
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