Question

4-1 Sine WU T I DL (Lacluueu) benelits worth $5,000. What is the amount of Rick's after-tax compensation for the competing offer? Which job should he take if taxes are the only concer? 31. Through November, Cameron has received gross income of $120,000. For Decem- b er, Cameron is considering whether to accept one more work engagement for the year. Engagement I will generate $7,000 of revenue at a cost to Cameron of $3,000, which is deductible for AGL In contrast, engagement 2 will generate $5,000 of qualified business income (CBI), which is eligible for the 20 percent QBI deduction. Cameron files as a single taxpayer. a) Calculate Cameron's taxable income assuming he chooses engagement I and assuming he chooses engagement 2. Assume he has no itemized deductions. b) Which engagement maximizes Cameron's after-tax cash flow? Explain. 32. Nitai, who is single and has no dependents, was planning on spending the weekend repairing his car. On Friday, Nitai's employer called and offered him $500 in overtime pay if he would agree to work over the weekend. Nitai could get his car repaired over the weekend at Autofix for $400. If Nitai works over the weekend. he will have to pay the $400 to have his car repaired but he will earn $500. Assume Nitai pays tax at a flat 12 percent rate. a) Strictly considering tax factors, should Nitai work or repair his car if the $400 he must pay to have his car fixed is not deductible 4-1

Answer 1

Q. 31

Answer:

A)
Taxable Income if engagement 1 is choose:		Amount
Gross Income till November		120000
Revenue income in December	7000
Less: Deduction for AGI (Above the line deductions)	3000	4000
Adjusted Gross income		124000
Less: Standard Deduction		12200
Taxable Income		111800
Taxable Income if engagement 2 is choose:		Amount
Gross Income till November		120000
Qualified Business income in December		5000
Adjusted Gross income		125000
Less: Standard Deduction		12200
		112800
Less: QBI Deduction @ 20% of QBI		1000
Taxable Income		111800
B)
After Tax Cash Flow:
Taxable Income if engagement 1 is choose:		Amount
Gross Income till November		120000
Revenue income in December	7000
Less: Deduction for Expenses	3000	4000
		124000
Taxable Income if engagement 2 is choose:		Amount
Gross Income till November		120000
Qualified Business income in December		5000
Adjusted Gross income		125000
Result
since tax rate is same in above two cases after tax cash flow will be higher if engagement 2 is choosen.

Q. 32

a)
If natai choose to work overtime and gets his car repaired with other in $ 400
Income from overtime worked		500
Less : Tax @ 12%		60
		440
Less: amount paid on repairing		400
After tax cash flow		40
If natai do not go to overtime and gets his car repaired through own then no extra income is generated, so it is advisable to go to overtime and gets car repair from other.