Suppose you are a billionaire, thanks to you dumping your life savings into Dogecoin a year ago.
Question:
Suppose you are a billionaire, thanks to you dumping your life savings into Dogecoin a year ago. Now that you are a billionaire, you are trying to decide how to blow some money. Option #1 is an exotic car (that you will likely crash) that costs $500,000. Option #2 is a suite at Ford Field that you will use to throw parties. Since you are a billionaire, you face a tax rate of 39%.
a. Suppose you use $500,000 of your income to buy the exotic car. How much of this income will be subject to the income tax? How much income tax will you owe?
b. Suppose that you can still deduct 50% of entertainment expenses from taxes and you manage to convince the IRS that you are conducting legitimate business entertainment in your suite. How much of the $500,000 in income you use to rent the suite is subject to the income tax and how much taxes do you owe?
c. Compare your answers to a. and b. How much does this tax expenditure cost the federal government in tax revenues? How do these tax expenditures direct people towards tax subsidized activities?
Investment Analysis and Portfolio Management
ISBN: 978-0538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown