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.

A. $1,638

B. $1,630

C. $2,400

D. $1,100

Explanation:

Calculation for the after-tax cost of each payment

a. Based on the information given we were told that the payment amount of $2,600 for the following year’s property is been taxed on the place of business which means that the After-tax cost will be calculated as:

After-tax cost=$2,600 × (1 − 0.37)

After-tax cost=$2,600 × 0.63

After-tax cost=$1,638

b. Based on the information given we were told that the amount of $2,000 will be the amount to reimburse the cost of meals that was incurred by the employees which means that we are going to deduct half of the cost of meals

After-tax cost=$2,000 × [1 − (0.50 × 0.37)]

After-tax cost=$2,000 × (1-0.185)

After-tax cost=$2,000×0.815

After-tax cost=$1,630

c. Based on the information given the amount of $2,400 which is the football tickets amount to entertain the clients that are out-of-town will not be deductible because the amount is for entertainment.

d. Based on the information given the amount of $1,100 will not be deductible reason been that the money was the amount that was contributed to mayor’s re-election campaign.

c.

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