Question

Elle has income and deductions as a C.P.A. for 2019 that are summarized as follows:

Salary and bonuses                   $149,500

Reimbursed employee business expenses        11,250

Unreimbursed employee business expenses                2,200

Elle's employer provides medical insurance coverage (for herself and her immediate family) worth $1,050 per month and matches her $500 per month depositin a personal retirement account.

You may assume that Elle pays a flat income tax of 18%.

1. Calculate Elle's net after-tax cash flow from this job.

2. Briefly (no more than 200 words) describe two advantages and two disadvantages of employee status (compared to being self-employed).

Answer 1

1)
Salary and bonus	$1,49,500
Reimbursement employees business expemses ( expensed and received so no effect on cashflow)	-
Unreimbursed employee business expenses ( as not received so considered as cash outflow)	-$2,200
Medical facility benefits are not cash benefits, so no cashflow effect	-
Gross Salary	$1,47,300
Less: Deposit in retirement account (assumed deduction from her salary each month)	-$6,000
Less: Income Tax (Income tax @ 18% on total of salary & bonus $ 1,49,500 and medical benefits $ 12,600 )	-$29,178
Net Cash Flow from Salary income during 2019	$1,12,122
2)
Advantages of Employee status compared to self employment:
There are first benefit is fixed revenue in employement, which is uncertain in a business. Second benefit is fix timing
so a person can manage home and office both systematically, third is every year enhancement of cashflow by increase
in salary & pay, which is only probability in business. No loss of capital as initially required in a business if loss happen.
Disadvantage of employement is limited revenue compared to business, where heavy income is expected if things go
right in business. Flexibility of timing, as an own boss in business than following the instruction only in business. . Indepency of taking decision in business is possible, which is missing in employement. Heavy presure and late
night sitting is bad choice in employement.