Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $20,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Mannys 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.

Required:

What is the after-tax income if Manny sends his client the bill in December?

After-Tax Income =

What is the after-tax income if Manny sends his client the bill in January? Use Exhibit 3.1.

After-Tax Income =

Note: Round your answer to the nearest whole dollar amount.

Based on requirements a and b, should Manny send his client the bill in December or January?

Exhibit 3.1

	4%	5%	6%	7%	8%	9%	10%	11%	12%
Year 1	0.962	0.952	0.943	0.935	0.926	0.917	0.909	0.901	0.893
Year 2	0.925	0.907	0.890	0.873	0.857	0.842	0.826	0.812	0.797
Year 3	0.889	0.864	0.840	0.816	0.794	0.772	0.751	0.731	0.712
Year 4	0.855	0.823	0.792	0.763	0.735	0.708	0.683	0.659	0.636
Year 5	0.822	0.784	0.747	0.713	0.681	0.650	0.621	0.593	0.567
Year 6	0.790	0.746	0.705	0.666	0.630	0.596	0.564	0.535	0.507
Year 7	0.760	0.711	0.665	0.623	0.583	0.547	0.513	0.482	0.452
Year 8	0.731	0.677	0.627	0.582	0.540	0.502	0.467	0.434	0.404
Year 9	0.703	0.645	0.592	0.544	0.500	0.460	0.424	0.391	0.361
Year 10	0.676	0.614	0.558	0.508	0.463	0.422	0.386	0.352	0.322
Year 11	0.650	0.585	0.527	0.475	0.429	0.388	0.350	0.317	0.287
Year 12	0.625	0.557	0.497	0.444	0.397	0.356	0.319	0.286	0.257
Year 13	0.601	0.530	0.469	0.415	0.368	0.326	0.290	0.258	0.229
Year 14	0.577	0.505	0.442	0.388	0.340	0.299	0.263	0.232	0.205
Year 15	0.555	0.481	0.417	0.362	0.315	0.275	0.239	0.209	0.183