Overview

Main Menu Name: Outlay

Calculates the cost of an outlay to an individual or corporation if the outlay is nondeductible. It also calculates the cost to an individual or corporation if an outlay is deductible.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

For each dollar earned above certain amounts, taxes must be paid by either individuals or corporations. For each dollar deductible by either individuals or corporations, taxes are reduced.

An outlay that is nondeductible requires that the taxpayer earn more than that amount to make the outlay. The true "cost" of the outlay in actual dollars earned, is the amount of the outlay plus the earnings needed to pay the tax attributed to the outlay. For example, suppose a taxpayer was in a combined marginal tax bracket of fifty percent. a $10,000 nondeductible purchase would "cost" $20,000. In other words, the taxpayer would have had to earn $20,000 to pay the tax of $10,000 and have another $10,000 left to make the purchase.

An outlay which is deductible requires that a taxpayer earn less than the amount needed to make the outlay. Why? Because money saved in taxes (that otherwise would have been paid to the federal or state government) is available to defray the cost of the purchase. For example, suppose the taxpayer in the illustration above purchased a deductible item. The cost to a taxpayer in a top combined bracket of 50 percent who purchases a deductible item with a cost of $10,000 is only $5,000. This is because $5,000 in taxes that otherwise would have been paid will not have to be.

Keep in mind that both situations depend on the top rate at which tax will be paid or a deduction will be allowed. This is the CMTB, the combined marginal tax bracket, and considers both federal and state income taxes.

Why should I use this calculator?

• Analyze the true cost of an outlay.
• Compare the true cost of one outlay with another.
• Factor in the true cost of an outlay in other illustrations and computations.

Getting Started

For each dollar earned above certain amounts, taxes must be paid by either individuals or corporations. For each dollar deductible by either individuals or corporations, taxes are reduced.

An outlay that is nondeductible requires that the taxpayer earn more than enough to make the outlay. Therefore, the true "cost" of the outlay is the actual dollar amount of the outlay plus the tax that had to be earned to net an amount equal to the outlay. For example, suppose a taxpayer was in a combined marginal tax bracket of 50 percent. a $10,000 nondeductible purchase would "cost" $20,000. In other words, the taxpayer would have had to earn $20,000 to pay the tax of $10,000 and have another $10,000 left to make the purchase.

An outlay that is deductible requires that a taxpayer earn less than the amount needed to make the outlay. Why? Because money saved in taxes (that otherwise would have been paid to the federal or state government) is available to defray the cost of the purchase. For example, suppose the taxpayer in the illustration above purchased a deductible item. The cost to a taxpayer in a top combined bracket of 50 percent who purchases a deductible item with a cost of $10,000 is only $5,000. This is because $5,000 in taxes that otherwise would have been paid will not have to be.

Keep in mind that both situations depend on the top rate at which tax will be paid or a deduction will be allowed. This is the CMTB, the combined marginal tax bracket, and considers both federal and state income taxes. If you need help calculating the CMTB, use the After-Tax Return and Cost Calculator (Marginal).

Entering Data

1. Proposed Outlay:  Enter the dollar amount of the proposed outlay.
2. Individual's Combined Marginal Tax Bracket:  Enter the top marginal combined bracket of an individual taxpayer (if applicable). If you do not already know the Combined Marginal Tax Bracket (CMTB), use the After-Tax and Cost Calculator (Marginal) to calculates it.
3. Corporation's Combined Marginal Tax Bracket:  Enter the top marginal combined bracket of a corporate taxpayer. If you do not already know the CMTB, use the After-Tax and Cost Calculator (Marginal) to calculate it.

Results

The program calculates the cost of a specified outlay to an individual assuming the outlay is nondeductible and deductible. It also shows the cost of a specified outlay to a corporate taxpayer assuming the outlay is nondeductible and deductible.