Sarah owes a deductible expense that she can either pay (and deduct)this year or next year.She is in the 25% marginal tax rate bracket.Which of the following statements about this payment is/are correct?
I.Deductions should always be taken in the current year.Sarah should pay the expense this year.
II.If Sarah expects to be in the 28% marginal tax rate bracket next year,she should pay the expense next year.

Question

Sarah owes a deductible expense that she can either pay (and deduct)this year or next year.She is in the 25% marginal tax rate bracket.Which of the following statements about this payment is/are correct?
I.Deductions should always be taken in the current year.Sarah should pay the expense this year.
II.If Sarah expects to be in the 28% marginal tax rate bracket next year,she should pay the expense next year.
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Quizplus · Accepted Answer

Statement I is incorrect since deductions do not always have to be taken in the current year. Sarah should evaluate her tax situation for both years before making a decision.
Statement II is correct because if Sarah expects to be in a higher tax bracket next year, she should defer the payment to next year when she can take advantage of the higher tax rate deduction.

Sarah Owes a Deductible Expense That She Can Either Pay