2010 AM session individual Lima.

Hi!

can somebody clairfy this

lima’s pre tax income is 140k

and she needs 96000 expense and wishes to make 12000 saving

tax rate is 25% so she needs pre tax income 128,000 so far ok

but the answer said because 140k-128k =12k , she could make that contribution.

My perspective 140k is pre tax income so 35k should be deducted

i.e she does not have sufficient income. Am I correct?

if you deduct,

after tax income - exp

=105-96=9

pre tax = 9/(1-0.25)= 12, she can make that contribution.

She has. She spends 96/.75=128 pretax and saves 12 also pretax. In total 140, which is equal to pretax salary.

A ha! Thanks guys!