Expense Recognition deferral without delaying cash outflow.

The company I work for was invoiced 850,000 for contract labor in January for work done in December. The payment didn't go out until January. The expense was recognized in December since that was the month that the expense was initiated. It is a deductible expense.  What are the tax ramifications if the marginal rate in December was 27% and the marginal rate beginning in January was 31%? Which year would have been better to recognize expense for tax purposes?

Q2: Determining the effect on after-tax cash flows of deferral of a tax cost.

In the realm of accounting and financial decision-making, understanding the implications of deferring tax costs on after-tax cash flows is crucial. When companies make choices that result in the postponement of tax payments, it can have significant ramifications for their overall financial health.

Consider a hypothetical scenario in which a corporation is presented with two investment opportunities: Project A, which will result in an immediate tax liability, and Project B, which allows for the deferral of a tax cost. In this context, discuss the following:

 How does the deferral of a tax cost impact the timing of cash flows for a company? What are the advantages and disadvantages of deferring tax liabilities in terms of after-tax cash flows over time?

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Q1 Tax Ramifications of Expense Recognition Deferral In your scenario you have a choice of recognizing the expense either in December or January and you want to understand the tax ramifications Heres ... View the full answer