Identify the tax issue(s) and ascertain the possible tax consequences of each issue.

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Chapter 4, Problem 71IIP

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Identify the tax issue(s) and ascertain the possible tax consequences of each issue.

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Sarah is a cash-method, calendar-year taxpayer, and she is considering making the following cash payments related to her business. Calculate the after-tax cost of each payment assuming she has a 37 percent marginal tax rate. $2,000 payment for next year’s property taxes on her place of business. $800 to reimburse the cost of meals at restaurants incurred by employees while traveling for the business. $1,200 for football tickets to entertain out-of-town clients during contract negotiations. $500 contribution to the mayor’s reelection campaign.

State whether each of the following payments is a tax. Explain your answers. To incorporate his business, Alex pays the state of Texas a $2,000 incorpora tion fee. The city paves a road and assesses each property owner on the road $4,000 for his or her share of the cost. The city of Asheville charges each residence in the city $10 per month to pick up the trash. Rory pays $450 of income tax to the state of California. Lanny is fined $45 for exceeding the speed limit.

Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $22,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Manny's marginal tax rate is 37 percent this year and next year, and that he can earn an after-tax rate of return of 8 percent on his investments. a. What is the after-tax income if Manny sends his client the bill in December? After-tax income b. What is the after-tax income if Manny sends his client the bill in January? Use Exhibit 3.1. (Round your answer to the nearest whole dollar amount.) After-tax income c. Based on requirements a and b, should Manny send his client the bill in December or January? O December O January