You have the option to elect to receive your $100,000 bonus in either Jan 2020 or...
You have the option to elect to receive your $100,000 bonus in either Jan 2020 or deferring it into Jan 2021, for exactly 1 year. Your tax rate in 2020 is 30% and is expected to be 20% in 2021. The rate of return from investing your 2020 bonus would be 6%. Which year would provide the larger after tax result? Provide calculations. What other issues might you want to consider?
Homework Answers
After tax amount if received in 2020 = 100,000(1-30%) = $70,000
Amount in 2021 after investment = 70,000(1.06) = $74,200
If received in 2021 = 100,000(1-20%) = $80,000
Hence, 2021 would provide larger after tax result
Other issues are:
1.requirement of money
2. Certainty of tax rates
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