Ch08: TaBS, Employee Compensation

Question 1

Cost of a reimbursement to the firm

Answer 1

(reimbursement) – [𝑡_𝑐 x (ME deduction)]

Question 2

Meals and Entertainment Expense (ME deduction)

Answer 2

Deductible up to 50% of ME expense; can be deducted only if it exceeds 2% of gross income.

(ME deduction) = (reimbursement x 50%)

Question 3

The salary the firm would be indifferent to paying if there is a reimbursement:

Answer 3

$S = [reimbursement - t.c x (reimbursement x 50%)] / (1 - t.c)

Question 4

Gross Income

Answer 4

EBT + (itemized deductions) + (personal exemptions)