Personal Finance Tax Update
Personal Finance Tax Update
13th Edition
ISBN: 9780357438947
Author: E. Thomas Garman; Raymond Forgue
Publisher: Cengage Learning US
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Chapter 1, Problem 1BYOPFM
Summary Introduction

To explain: Whether an individual should contribute in flexible spending account or in a 401(k) retirement account.

Introduction:

Employment decisions:smart decisions about employee benefits can increase actual income 30 percent or more. Such decisions helps recognize regular investments to get long-term maximum earnings. An employee benefit is the general term for the indirect benefits one receives at work,it includes benefits like paid vacations sick days, health insurance, a retirement plan, child care, parental leave, and an educational assistance program. While some benefits are free, others will cost some money, but they also will save money.

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You are considering an option to purchase or rent a single residential property. You can rent it for $5,000 per month and the owner would be responsible for maintenance, property insurance, and property taxes. Alternatively, you can purchase this property for $204,500 and finance it with an 80 percent mortgage loan at 4 percent interest that will fully amortize over a 30-year period. The loan can be prepaid at any time with no penalty. You have done research in the market area and found that (1) properties have historically appreciated at an annual rate of 2 percent per year, and rents on similar properties have also increased at 2 percent annually; (2) maintenance and insurance are currently $1,545.00 each per year and they have been increasing at a rate of 3 percent per year; (3) you are in a 24 percent marginal tax rate and plan to occupy the property as your principal residence for at least four years; (4) the capital gains exclusion would apply when you sell the property; (5)…
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