A taxpayer in the 25% marginal tax bracket invests $1,000 of after- tax dollars at 10% interest before taxes. At the end of year one, the taxpayer will have accumulated after- tax dollars of $1,075.

Question

Quizplus · Accepted Answer

The taxpayer will have accumulated after-tax dollars of $1,100, not $1,075. The interest earned is $100, and the taxpayer will pay $25 in taxes on this interest, leaving them with $1,100 after taxes.

A Taxpayer in the 25% Marginal Tax Bracket Invests $1,000