Assuming a 21 percent marginal tax rate, compute the after-tax cost of the following business expenses: $5,800 premium on business property and casualty insurance. $1,400 fine paid for business entertainment. $3,900 premium on key-person life insurance. $52,000 political contribution. $8,000 client meals

a) $4,582 b) $1,400 c) $3,900 d) $52,000 e) $7,160

Explanation:

The assumption is that the marginal tax rate is 21%

Therefore,

a) Calculate the after tax cost on $5,800 premium on business property and casualty insurance

First, it should be noted that the insurance premium on business property and casualty is tax deductible therefore, the calculation is as follows

$5,800 - ($5,800 x 0.21)

= $5,800 - $1,218

= $4,582

b) $1,400 fine paid for business entertainment

The fine paid on business entertainment is not tax deductible hence the after tax cost remains $1,400

c) $3,900 premium on key-person life insurance

Life insurance premium is not tax deductible, therefore the after tax cost remains $3,900

d) $52,000 political contribution

This political contribution is also not tax deductible, the after tax cost remains $52,000

e) $8,000 client meals

The congress has only allowed a deduction of 50% of most business meals

Therefore

$8,000 - ($4000 x 0.21)

$8,000 - 840

=$7,160