question archive Assuming a 21 percent marginal tax rate, compute the after-tax cost of the following business expenses: a
Assuming a 21 percent marginal tax rate, compute the after-tax cost of the following business expenses: a
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Assuming a 21 percent marginal tax rate, compute the after-tax cost of the following business expenses:
a. $5,600 premium on business property and casualty insurance.
b. $1,200 fine paid for business entertainment.
c. $3,700 premium on key-person life insurance.
d. $50,000 political contribution.
e. $7,800 client meals.
a. After-tax cost
b. After-tax cost $1,200
C. After-tax cost $ 3,700
d. After-tax cost $50,000
e. After-tax cost
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Answer:
| a) $4,424 b) $1,200 c) $3,700 d) $50,000 e) $6,981 |
| Explanation: |
| The assumption is that the marginal tax rate is 21% |
| Therefore, |
| a) Calculate the after tax cost on $5,600 premium on business property and casualty insurance |
| First, it should be noted that the insurance premium on business property and casualty is tax deductible therefore, the calculation is as follows |
| $5,600 - ($5,600 x 0.21) |
| = $5,600 - $ 1,176 |
|
= $4,424 |
| b) $1,200 fine paid for business entertainment |
| The fine paid on business entertainment is not tax deductible hence the after tax cost remains $1,200 |
|
c) $3,700 premium on key-person life insurance |
|
Life insurance premium is not tax deductible, therefore the after tax cost remains $3,700 |
| d) $50,000 political contribution |
|
This political contribution is also not tax deductible, the after tax cost remains $50,000 |
| e) $7,800 client meals |
| The deduction is only allowed 50% of most business meals |
| Therefore |
| $7,800 - ($3,900 x 0.21) |
| $7,800- 819 |
| =$6,981 |
