1. We discussed that one strategy for tax planning is to shift income across time periods. Michael has been presented with two options from his employer. With the first option, hell receive $80,000 that at the end of year 1 is fully taxable at his ordinary income tax rate. Immediately, he can reinvest that money at the end of year 1 and hold it until the end of year 2 (a 1 year horizon investment) and earn 10% of interest income (pre-tax) that is taxable at his ordinary income tax rate at the end of year 2. Alternatively, with the second option, his employer will hold onto the $80,000 in year 1, reinvesting it in the firm, but agree to instead pay Michael $90,000 at the end of year 2, which would be taxed at Michaels ordinary income tax rate in year 2. Michaels ordinary income tax rates in year 1 and year 2 are 20% and 30%, respectively.
   1. Assume that the answer for A. (option 1) is $110,000 and for B. (option 2) is $120,000. Which option will Michael prefer?
      1. Option 1 go ahead and receive the income in year 1
      2. Option 2 defer income receipt until year 2
      3. Michael will be indifferent between the two options.