McGraw Hill’s Taxation of Individuals 2022 Edition 13th Edition by Brian Spilker Solution manual
[LO 3] Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule, how much federal tax will he owe? What is his average tax rate? What is his effective tax rate? What is his current marginal tax rate?
Chuck will owe $12,249 in federal income tax this year computed as follows:
$12,249 = $4,664 + 22% ($75,000 - $40,525)—rounded up to the nearest dollar.
Chuck’s average tax rate is 16.33 percent.
Average Tax Rate = Total Tax/Taxable Income = $12,249/$75,000 = 16.33%
Chuck’s effective tax rate is 14.41 percent.
Effective tax rate = Total Tax/Total Income = $12,249/($75,000 + $10,000) = 14.41%
Chuck is currently in the 22 percent tax rate bracket. His marginal tax rate on increases in income up to $11,375 and deductions from income up to $34,475 is 22 percent.
If Chuck earns an additional $40,000 of taxable income, his marginal tax rate on the income is 23.43 percent.
Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($21,621 - $12,249)/($115,000 - $75,000) = 23.43%
Where $21,621 for the revised tax is computed as follows: $21,621 = $14,751 + 24% ($115,000 - $86,375).
If Chuck instead had $40,000 of additional tax deductions, his marginal tax rate on the deductions would be 20.62 percent.
Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($4,001 - $12,249)/($35,000 - $75,000) = 20.62%
Where $4,001 for the revised tax is computed as follows: $4,001 = $995 + 12% (35,000 - $9,950).
Campbell will owe $114,544 in federal income tax this year computed as follows:
$114,544= $47,843 + 35% × ($400,000 - $209,425)—rounded up to the nearest dollar.
Campbell’s average tax rate is 28.64 percent.
Average Tax Rate = TotalTax/Taxable Income = $114,544/$400,000 = 28.64%
Campbell’s effective tax rate is 28.49 percent.
Effective tax rate = Total Tax/Total Income = $114,544/($400,000 + $2,000) = 28.49%
Campbell is currently in the 35 percent tax rate bracket. Her marginal tax rate on deductions up to $190,575 will be 35 percent. However, her marginal tax rate on the next $123,600 of income will be 35%, and income earned over $523,600 will be taxed at 37 percent.
If Campbell earns an additional $15,000 of taxable income, her marginal tax rate on the income is 35 percent.
Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($119,794 - $114,544)/($415,000 - $400,000) = 35.00%
Where $119,794 for the revised tax is computed as follows: $119,794 = $47,843 + 35% ($415,000 - $209,425).
If Campbell instead had $15,000 of additional tax deductions, her marginal tax rate on the deductions would be 35.00 percent.
Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($109,294 - $114,544)/($385,000 - $400,000) = 35.00%
Where $109,294 for the revised tax is computed as follows: $109,294 = $47,843 + 35% ($385,000 - $209,425).
Jorge and Anita will owe $24,497 in federal income tax this year computed as follows:
$24,497 = $9,328 + 22% ($150,000 - $81,050).
Chuck will owe $12,249 in federal income tax this year computed as follows:
$12,249 = $4,664 + 22% ($75,000 - $40,525)—rounded up to the nearest dollar.
Chuck’s average tax rate is 16.33 percent.
Average Tax Rate = Total Tax/Taxable Income = $12,249/$75,000 = 16.33%
Chuck’s effective tax rate is 14.41 percent.
Effective tax rate = Total Tax/Total Income = $12,249/($75,000 + $10,000) = 14.41%
Chuck is currently in the 22 percent tax rate bracket. His marginal tax rate on increases in income up to $11,375 and deductions from income up to $34,475 is 22 percent.
- [LO 3] Using the facts in problem 34, if Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income? What is his marginal rate if, instead, he had $40,000 of additional deductions?
If Chuck earns an additional $40,000 of taxable income, his marginal tax rate on the income is 23.43 percent.
Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($21,621 - $12,249)/($115,000 - $75,000) = 23.43%
Where $21,621 for the revised tax is computed as follows: $21,621 = $14,751 + 24% ($115,000 - $86,375).
If Chuck instead had $40,000 of additional tax deductions, his marginal tax rate on the deductions would be 20.62 percent.
Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($4,001 - $12,249)/($35,000 - $75,000) = 20.62%
Where $4,001 for the revised tax is computed as follows: $4,001 = $995 + 12% (35,000 - $9,950).
- [LO 3] Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bonds. Using the U.S. tax rate schedule, how much federal tax will she owe? What is her average tax rate? What is her effective tax rate? What is her current marginal tax rate?
Campbell will owe $114,544 in federal income tax this year computed as follows:
$114,544= $47,843 + 35% × ($400,000 - $209,425)—rounded up to the nearest dollar.
Campbell’s average tax rate is 28.64 percent.
Average Tax Rate = TotalTax/Taxable Income = $114,544/$400,000 = 28.64%
Campbell’s effective tax rate is 28.49 percent.
Effective tax rate = Total Tax/Total Income = $114,544/($400,000 + $2,000) = 28.49%
Campbell is currently in the 35 percent tax rate bracket. Her marginal tax rate on deductions up to $190,575 will be 35 percent. However, her marginal tax rate on the next $123,600 of income will be 35%, and income earned over $523,600 will be taxed at 37 percent.
- [LO 3] Using the facts in problem 36, if Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income? What is her marginal rate if, instead, she had $15,000 of additional deductions?
If Campbell earns an additional $15,000 of taxable income, her marginal tax rate on the income is 35 percent.
Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($119,794 - $114,544)/($415,000 - $400,000) = 35.00%
Where $119,794 for the revised tax is computed as follows: $119,794 = $47,843 + 35% ($415,000 - $209,425).
If Campbell instead had $15,000 of additional tax deductions, her marginal tax rate on the deductions would be 35.00 percent.
Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($109,294 - $114,544)/($385,000 - $400,000) = 35.00%
Where $109,294 for the revised tax is computed as follows: $109,294 = $47,843 + 35% ($385,000 - $209,425).
- [LO 3] Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule for married filing jointly (see Example 1-3), how much federal tax will they owe? What is their average tax rate? What is their effective tax rate? What is their current marginal tax rate?
Jorge and Anita will owe $24,497 in federal income tax this year computed as follows:
$24,497 = $9,328 + 22% ($150,000 - $81,050).