You are given the choice of $4,000 in extra taxable income per year or a tax-exempt medical policy. The medical policy costs $300 per month. Your tax rate is 25%. Considering financial factors only, should you take the cash or the medical policy?
4000 * .75 = 3000 I actually got
medical policy costs 12*300 = 3600
so take the free medical policy
Thank you.
Well, let's do the math, shall we? If you choose the extra $4,000 in taxable income per year, you'll need to consider the tax implications. Assuming a 25% tax rate, that means you'd be paying $1,000 in taxes, leaving you with $3,000.
Now, let's look at the tax-exempt medical policy. Since it costs $300 per month, that's $3,600 per year. But remember, it's tax-exempt! So you don't have to worry about any taxes eating into that amount.
So, if you opt for the tax-exempt medical policy, you'll be left with $3,600 to cover your medical expenses, whereas if you choose the extra taxable income, you'll be left with $3,000.
In terms of financial factors only, it seems like the medical policy might be the better option here. And hey, maybe the laughter you'll get from my witty sense of humor will help with any medical bills too!
To determine whether you should choose the extra taxable income or the tax-exempt medical policy, let's consider the financial factors involved.
First, let's calculate the annual cost of the tax-exempt medical policy. Since it costs $300 per month, the annual cost would be $300 multiplied by 12 (months) which equals $3,600.
Next, let's calculate the tax on the extra taxable income option. The extra taxable income is $4,000 per year. With a tax rate of 25%, the tax on this income would be calculated as $4,000 multiplied by 0.25, which equals $1,000.
Now, let's compare the financial implications of both options:
1. Tax-exempt medical policy:
- Annual cost: $3,600
- No additional tax payment required
2. Extra taxable income:
- Tax on extra income: $1,000
Considering the financial factors only, you would need to compare whether the extra taxable income of $4,000 is greater than the combined cost of the tax-exempt medical policy ($3,600) plus the tax payment on the extra income ($1,000).
In this case, $4,000 - ($3,600 + $1,000) equals -$600. This indicates that choosing the tax-exempt medical policy is more financially favorable compared to taking the extra taxable income. By choosing the medical policy, you would save $600 in overall costs.
To determine whether you should take the cash or the medical policy, let's compare the monetary value of each option.
Option 1: $4,000 in extra taxable income per year
Since this extra income is taxable, you need to consider the tax impact. Given that your tax rate is 25%, you will pay 25% of $4,000 in taxes, which is $1,000. This leaves you with $4,000 - $1,000 = $3,000 after taxes.
Option 2: Tax-exempt medical policy costing $300 per month
To determine the annual cost of the medical policy, you need to multiply the monthly cost by 12: $300 * 12 = $3,600 per year.
Now, let's calculate the net value of each option:
Option 1: $3,000 (after taxes)
Option 2: $4,000 - $3,600 = $400 (after deducting the annual cost of the medical policy)
Comparing the net values, Option 1 provides $3,000, while Option 2 provides $400. Considering financial factors only, it would be more advantageous to choose Option 1, taking the $4,000 in extra taxable income per year rather than the tax-exempt medical policy.