Jaun plans to give $5,000 to the American Diabetes Association.Jaun's marginal tax rate is 28%.His average tax rate is 25%.Jaun's after-tax cost of the contribution is

Question

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The after-tax cost of the contribution is the amount of money that Jaun will have to pay in taxes as a result of making the contribution. Jaun's marginal tax rate is 28%, which means that he will have to pay 28% of the $5,000 contribution in taxes. This amounts to $1,400. Jaun's average tax rate is 25%, which means that he will have to pay 25% of his total income in taxes. This amounts to $1,250. Therefore, the after-tax cost of the contribution is $1,400 + $1,250 = $3,600.

Jaun Plans to Give $5,000 to the American Diabetes Association