Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $36,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Mannys marginal tax rate is 40 percent this year and next year, and that he can earn an after-tax rate of return of 10 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.

After-tax income

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