Sarah owes a deductible expense that she can either pay (and deduct) this year or next year. She is in the 22% 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 32% 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 22% 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 32% marginal tax rate bracket next year, she should pay the expense next year.
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Quizplus · Accepted Answer

If Sarah expects to be in a higher tax bracket next year, she should delay the deduction and pay the expense in that year. This will result in a larger tax savings as the higher tax rate will apply to the deduction. Therefore, statement II is correct. However, statement I is incorrect as deductions do not always have to be taken in the current year. It depends on the individual's tax situation and future expectations.

Sarah Owes a Deductible Expense That She Can Either Pay