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Matteo can work overtime or repair his car

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30. Matteo, who is single and has no dependents, was planning on spending the weekend repairing his car. On Friday, Matteo's employer called and offered him $500 in overtime pay if he would agree to work over the weekend. Matteo could get his car repaired over the weekend at Autofix for $400. If Matteo works over the weekend, he will have to pay the $400 to have his car repaired but he will earn $500. Assume Matteo pays tax at a flat 15 percent rate.

a) Strictly considering tax factors, should Matteo work or repair his car if the $400 he must pay to have his car fixed is not deductible?
b) Strictly considering tax factors, should Matteo work or repair his car if the $400 he must pay to have his car fixed is deductible for AGI?

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Solution Summary

This solution shows whether Matteo should work overtime and have someone repair his car or should stay home and repair the car himself. All calculations are given and explained.

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a) Strictly considering tax factors, should Matteo work or repair his car if the
$400 he must pay to have his car fixed is not deductible?

-- 500 x .15 = 75; 500 - 75 = $425
If he works, he will have net income of $425 (calculation) and it will cost him $400 to get his car repaired, so we can continue the calculation as follows:
425 - 400 = $25

If he doesn't ...

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