Final answer:
To calculate the after-tax cost of a business expense at a 21 percent marginal tax rate, multiply the expense by the tax rate to find the tax savings, and then subtract that from the original expense. For example, a $300 expense would have an after-tax cost of $237 at this tax rate.
Step-by-step explanation:
When calculating the after-tax cost of a business expense, you first need to understand the marginal tax rate that applies to the business. Assuming a 21 percent marginal tax rate, you would reduce your expense by this percentage in order to calculate the after-tax cost.
Example Calculation:
- Imagine a business expense of $300.
- To calculate the after-tax cost, you need to determine how much tax savings the expense would provide. Multiply the expense by the marginal tax rate: $300 * 0.21 = $63.
- Subtract the savings from the original expense to get the after-tax cost: $300 - $63 = $237.
This means that a $300 business expense would cost you $237 after considering a 21 percent marginal tax rate. The business can subtract the tax savings from its expenses, thereby reducing the net cost of the expenses incurred.