answers to last week's blog

OK, its time for the answers to be revealed. If you got them all correct – then well done, you! If you got (even) one wrong then you failed.

 QUESTION 1

If you were offered cash – which option would you pick?

1. $500,000 or
2. $1 doubled 20 times (consecutively)
3. Depends on how much tax I will need to pay in each case
4. $1,000,000 on which you will need to pay tax at your marginal tax bracket.

 THE ANSWER: has to be B. I suspect you all should have got this one correct. For those that didn’t and you would like to know how to calculate it – this is what you do. Grab a calculator and press 1 X 2 then press X again and count ONCE. Then you press 2 then X and count TWICE and so on until you have counted TWENTY – the amount you should see on your calculator is 1,048,576.

QUESTION 2

Assume your tax bracket is in the 30% bracket and you have claimed $1,000 as a tax deduction. How much will this benefit you?

1. Full $1,000 because it 100% tax deductible
2. $300 because it is your tax margin
3. $315 you need to add the Medicare Levy
4. None really because I’ve already spent the $1,000 so how would I benefit anything?

THE ANSWER: option B, although option D is just as good in my books. I am surprised how many people would spend the money for that elusive tax deduction not realizing that tax deductions do not benefit you 100%.

QUESTION 3

Which one of the following is a greater benefit to you?

1. tax deduction of $1,000 or
2. tax rebate of $1,000

THE ANSWER: option B. This is because a tax deduction reduces your tax payable whereas a tax rebate directly reduces the amount of tax you pay.

Feel free to send me a feedback on whether you are enjoying my blog.