Joe Harry, a Cash-Basis Taxpayer, Owes $25,000 in Tax-Deductible Accounting

Essay

Joe Harry, a cash-basis taxpayer, owes $25,000 in tax-deductible accounting fees for his business. Assume that it is December 28^th and that Joe Harry can avoid any finance charges if he pays the accounting fees by January 10^th. Joe Harry's tax rate this year is 24 percent. His tax rate next year will be 32 percent. His after-tax rate of return is 5 percent. When should Joe Harry pay the $25,000 fees and why? Use Exhibit 3.1. (Round discount factor(s)to three decimal places.)