Help with two problems –
1. –
Isabel, a calendar-year taxpayer, uses the cash
method of accounting for her sole proprietorship. In late December she received
a $13,000 bill from her accountant for consulting services related to her small
business. Isabel can pay the $13,000 bill any time 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 7 percent on
her investments.
A.
– What is the after-tax cost
if Isabel pays the $13000 bill in December?
B.
– What is the after-tax cost if Isabel pays
the $13000 bill in January? UseExhibit 3.1.
C.
– Based on requirements A and B, should Isabel
pay the $13000 bill in December or January?
2. Daniel is considering selling two stocks that have not fared well
over recent years. A friend recently informed Daniel that one of his stocks has
a special designation, which allows him to treat a loss up to $36,000 on this
stock as an ordinary loss rather than the typical capital loss. Daniel figures
that he has a loss of $43,200 on each stock. If Daniel’s marginal tax rate is
35 percent and he has $86,400 of other capital gains (taxed at 15 percent), what
is the tax savings from the special tax treatment?
Tax Savings =
