Question

Haru is a self-employed cash-method, calendar-year taxpayer who made the following cash payments related to his business this year. Calculate the after-tax cost of each payment assuming Haru has a 37 percent marginal tax rate. Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.

a. $1,300 fine for speeding while traveling to a client meeting.

Answer 1

The after-tax cost of a non-deductible business expense, like a speeding fine, is the full amount of the expense. In Haru's case, with a marginal tax rate of 37%, the after-tax cost of the $1,300 speeding fine is $1,300.

Step-by-step explanation:

The student is asking about the after-tax cost of a business-related expense, given a marginal tax rate of 37%. Specifically, Haru is self-employed and wants to know the after-tax cost of a $1,300 fine for speeding while traveling to a client meeting. To calculate the after-tax cost of this non-deductible expense, we use the formula:

After-tax cost = Expense amount / (1 - Marginal tax rate)

However, since fines and penalties such as speeding tickets are not deductible business expenses, the after-tax cost of the fine would simply be the full amount of the fine. Therefore:

After-tax cost = $1,300 / (1 - 0) = $1,300 (since the expense is not deductible)

So, the after-tax cost of the fine is $1,300.