Assume Sarah is a cash-method, calendar-year taxpayer, and she is considering making the following cash payments related to her business. Calculate the after-tax cost of each payment assuming she is subject to a 37 percent marginal tax rate. (Do not round intermediate calculation.)

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Question:

Assume Sarah is a cash-method, calendar-year taxpayer, and she is considering making the following cash payments related to her business. Calculate the after-tax cost of each payment assuming she is subject to a 37 percent marginal tax rate. (Do not round intermediate calculation.)

Answer:a. $1260b. $652c. $978d. No after-tax cost is calculated since it is not deductible.Details of Remaining Part of the QuestionThe following are payments that were supposed to be listed for the question: a. $2000 payment for next year's property taxes on her place of business. b. $800 to reimburse the cost of meals incurred by employees while traveling for the business.c. $1200 for football tickets to entertain out-of-town clients during contract negotiations.d. $500 contribution to the mayor's re-election campaignExplanation: Calculation of after tax cost equationa. After tax cost = Payment Due × (1 - Marginal rate) After tax cost = $2000×(1 - 0.37) = $1260After tax cost for Sarah is $1260. Since it is property tax, the entire amount will be tax deductible according to the 12 month rule.b. Calculation of after tax cost equation for reimbursementAfter tax cost = Reimbursement cost × (1 - (Reduction on meals×Marginal rate))After tax cost = $800×(1 - (0.5×0.37)) = $652Only half the cost of meals is deductible.c. Calculation of after tax cost equation for Football ticketAfter tax cost = Football ticket cost × (1 - (Tax exemption×Marginal rate))After tax cost = $1200×(1 - (0.5×0.37)) = $978.Only half the cost of entertainment is deductible.d. Since the cost here is not directly related with the business, this will not be tax deductible. So the $500 contribution to the mayor's re-election campaign is not tax deductible, therefore no after-tax cost is calculated.

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