McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 47

Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship.In late December she received a $20,000 bill from her accountant for consulting services related to her small business.Isabel can pay the $20,000 bill anytime before January 30 of next year without penalty.Assume her marginal tax rate is 40 percent this year and next year, and that she can earn an after-tax rate of return of 12 percent on her investments.When should she pay the $20,000 bill - this year or next?