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| Please enlighten me on the below scenario:
By investing $100,000 (pretax) in tile, I can get an increased income of $100,000 (pre-tax), what is my return on investment over 5 years?
Your math:
Expense; $100,000 x .35 = $35,000 in taxes saved
So the tile only costs $65,000
Income: $100,000
$100,000 - $65,000 = $35,000/5years = $7,000/year
$7,000/$65,000 = 10.7% ROI
You are saying we spent $65,000 to get $100,000 back.
Correct math:
Expense: $100,000 X .35 = $35,000 in taxes
Tile only costs $65,000 (after tax savings) - I agree with this
Income: $100,000 income X .35 tax = $65,000 after tax profit because of no deductions, it was taken when you wrote off the tile in expenses shown above.
$65,000 - $65,000 = $0/5years = $0/year
$0/$65,000 = 0% ROI
This is the correct way, since you spent all of the money to put in tile, spending $65,000 to get $65,000 (or $100,000 to get $100,000) is a 0% ROI
You can't use before and after taxes at the same time = double dipping.
If this is incorrect please explain where the $35,000 missing dollars in your math is?
Thanks for your time.
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