Christopher is a self-employed cash-method, calendar-year taxpayer, and he made the following cash payments related to his business this year.

Calculate the after-tax cost of each payment assuming Christopher has a 37 percent marginal tax rate.

a. $1,080 fine for speeding while traveling to a client meeting. b. $465 of interest on a short-term loan incurred in September and repaid in November. Half of the loan proceeds were used immediately to pay salaries and the other half was invested in municipal bonds until November. c. $965 for office supplies in May of this year. He used half of the supplies this year and he will use the remaining half by February of next year. d. $675 for several pairs of work boots. Christopher expects to use the boots about 85 percent of the time in his business and the remainder of the time for hiking. Consider the boots to be a form of clothing.

Question

Ashton Carr

Business

23 December, 16:03

Christopher is a self-employed cash-method, calendar-year taxpayer, and he made the following cash payments related to his business this year.

Calculate the after-tax cost of each payment assuming Christopher has a 37 percent marginal tax rate.

a. $1,080 fine for speeding while traveling to a client meeting. b. $465 of interest on a short-term loan incurred in September and repaid in November. Half of the loan proceeds were used immediately to pay salaries and the other half was invested in municipal bonds until November. c. $965 for office supplies in May of this year. He used half of the supplies this year and he will use the remaining half by February of next year. d. $675 for several pairs of work boots. Christopher expects to use the boots about 85 percent of the time in his business and the remainder of the time for hiking. Consider the boots to be a form of clothing.

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Answers (1)

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Keon Harrison · Answer 1

Solution and Explanation:

a $1080 - the amount is not deductible as it is a penalty for the violation

b $395 - Half of the interest amount is not deductible

$395 is calculated as : (465 multiply with (1 minus (0.5 multiply with 0.3)). c $676 - the amount which is paid for the office supplies in the month of may in this year is Fully deductible (965 multiply with (1 minus 0.3)).

d $675 - the amount which is paid for the several pairs of work boots is not deductible.