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

question 74

Essay

Sal, a calendar year taxpayer, uses the cash-basis method of accounting for his sole proprietorship. In late December he performed $40,000 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 30% this year and 35% next year and that he can earn an after-tax rate of return of 12% on his investments. Should Sal send his client the bill in December or January?
Use Exhibit 3.1. (Round discount factor(s) to 3 decimal places.)

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Definitions:

Note Payable

A written promise to pay a specified amount of money, usually including interest, by a certain date.

Note Payable

A written promise to pay a specific sum of money on a certain date, or on demand, to the holder of the note, which can be short-term or long-term.