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Assuming a 21 percent marginal tax rate, compute the after-tax cost of the following business expenses:...

Assuming a 21 percent marginal tax rate, compute the after-tax cost of the following business expenses:

  1. $6,600 premium on business property and casualty insurance.
  2. $2,200 fine paid for business entertainment.
  3. $4,700 premium on key-person life insurance.
  4. $60,000 political contribution.
  5. $8,800 client meals.

Solutions

Expert Solution

1.

a. Because the property and casualty insurance premium is deductible, the after-tax cost is$5,214 ($6,600 – [$6,600 × 21%]).

b.Because the fine is nondeductible, the after-tax cost is $2,200.

c.Because the life insurance premium is nondeductible, the after-tax cost is $4,700

d.Because the political contribution is nondeductible, the after-tax cost is $60,000

e.Because only 50 percent of the entertainment expense is deductible, the after-tax cost is $7,876 ($8,800 – [$4,400 × 21%])

jeff jeffy answered 2 years ago
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