A taxpayer works at a corporation nearing the end of its fiscal year. The company has had a very successful (profitable) year and has decided to award the employee a cash bonus of 20% of annual salary (a bonus of $ 30,000). The firm has announced that the employee can take the cash bonus this year or defer it until next year. The taxpayer faces a current tax rate of 39.6%, but because she plans to work only a 50% schedule next year, she expects to face a tax rate of 31%. Assuming she can earn 5% after tax on her personal investments, should she accept the bonus this year or next year? Suppose she can earn 15% after tax on her personal investments. Would you change your recommendation?
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