ExpertCPA · Question 06 · Area I: Individual Compliance and Planning
A taxpayer expects their marginal tax rate to increase from 24% in Year 1 to 35% in Year 2. They have a $10,000 deductible expense they can pay in either December Year 1 or January Year 2. They also have a $10,000 consulting fee they can collect in December Year 1 or January Year 2. Assuming the time value of money is negligible for one month, what is the optimal strategy to minimize total tax liability?
A taxpayer expects their marginal tax rate to increase from 24% in Year 1 to 35% in Year 2. They have a $10,000 deductible expense they can pay in either December Year 1 or January Year 2. They also have a $10,000 consulting fee they can collect in December Year 1 or January Year 2. Assuming the time value of money is negligible for one month, what is the optimal strategy to minimize total tax liability?
Answer options:
Pay the expense in Year 1 and collect the income in Year 1.
Pay the expense in Year 1 and collect the income in Year 2.
Pay the expense in Year 2 and collect the income in Year 1.
Pay the expense in Year 2 and collect the income in Year 2.
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