Sal, a Calendar-Year Taxpayer, Uses the Cash-Basis Method of Accounting

question 87

Essay

Sal, a calendar-year taxpayer, uses the cash-basis method of accounting for his sole proprietorship. In late December, he performed $46,000 of consulting services for a client. Sal typically requires his clients to pay his bills immediately upon receipt. Assume that Sal's marginal tax rate is 32 percent this year and 37 percent next year and that he can earn an after-tax rate of return of 12 percent on his investments. Should Sal send his client the bill in December or January? Use Exhibit 3.1. (Round discount factor(s)to three decimal places.)

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Definitions:

Indirect Approach

A communication strategy where the main point or request is not stated directly but implied through more subtle or circumstantial expressions.

Recommendation Letter

A document written to provide a testimonial of a person’s character, abilities, and competencies, usually for employment or academic purposes.

Diplomacy

The practice of conducting negotiations between representatives of states or groups to manage international relations, resolve disputes, or foster cooperation.

Job Applicant

An individual who applies for a position of employment in a company or organization.