Susan sells life insurance and is considering buying a $50,000 Mercedes for business purposes (thus,the expense reduces her taxable income).If Susan 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?

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Quizplus · Accepted Answer

The cost of the Mercedes is $50,000. Since the expense reduces her taxable income, she effectively saves 40% in taxes on that amount. Therefore, the tax savings is $50,000 * 0.40 = $20,000. The after-tax cost of the Mercedes is $50,000 - $20,000 = $30,000.

Susan Sells Life Insurance and Is Considering Buying a $50,000