Kelly sells life insurance and is considering buying a $60,000 Mercedes for business purposes (thus,the expense reduces her taxable income).If Kelly is in the 40 percent marginal tax bracket,how much after-tax income will she have to give up in order to enjoy the Mercedes?

Question

Quizplus · Accepted Answer

The cost of the Mercedes is $60,000. Since the expense reduces her taxable income, she effectively saves 40% of $60,000 in taxes, which is $24,000. Therefore, the after-tax cost is $60,000 - $24,000 = $36,000.

Kelly Sells Life Insurance and Is Considering Buying a $60,000