McGraw Hill’s Taxation of Individuals 2022 Edition 13th Edition by Brian Spilker Solution manual

Jorge and Anita’s average tax rate is 16.33 percent. 
Average Tax Rate = TotalTax/Taxable Income = $24,497/$150,000 = 16.33%
 
Jorge and Anita’s effective tax rate is 12.89 percent. 
 
Effective tax rate = Total Tax/Total Income = $24,497/($150,000 + $40,000) = 12.89%
 
Jorge and Anita are currently in the 22 percent tax rate bracket.  Their marginal tax rate on increases of income up to $22,750 and deductions up to $68,950 is 22 percent.
 

39. [LO 3] Using the facts in problem 38, if Jorge and Anita earn an additional $100,000 of taxable income, what is their marginal tax rate on this income?  What is their marginal rate if, instead, they reported an additional $100,000 in deductions?

If Jorge and Anita earn an additional $100,000 of taxable income, their marginal tax rate on the income is 23.55 percent.

Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($48,042 - $24,497)/($250,000 - $150,000) = 23.55%
Where $48,042 for the revised tax is computed as follows: $48,042 = $29,502 + 24% ($250,000 - $172,750). 

If Jorge and Anita instead had $100,000 of additional tax deductions, their marginal tax rate on the deductions would be 18.90 percent.

Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($5,602 - $24,497)/($50,000 - $150,000) = 18.90%
Where $5,602 for the revised tax is computed as follows: $5,602 = $1,990 + 12% ($50,000 - $19,900). 
 

40. [LO 3] Scot and Vidia, married taxpayers, earn $240,000 in taxable income and $5,000 in interest from an investment in City of Tampa 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?

Scot and Vidia will owe $45,642 in federal income tax this year computed as follows:
 
                     $45,642 = $29,502 + 24% ($240,000 - $172,750). 

Scot and Vidia’s average tax rate is 19.02 percent.
 
Average Tax Rate = TotalTax/Taxable Income = $45,642/$240,000 = 19.02%
 
Scot and Vidia’s effective tax rate is 18.63 percent. 
 
Effective tax rate = Total Tax/Total Income = $45,642/($240,000 + $5,000) = 18.636%
 
Scot and Vidia are currently in the 24 percent tax rate bracket.  Their marginal tax rate on increases in income up to $89,850 and deductions up to $67,250 is 24 percent.
 

41. [LO 3] Using the facts in problem 40, if Scot and Vidia earn an additional $80,000 of taxable income, what is their marginal tax rate on this income?  How would your answer differ if they, instead, had $80,000 of additional deductions?

If Scot and Vidia earn an additional $80,000 of taxable income, their marginal tax rate on the income is 24.00 percent. 

Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($64,842 -$45,642)/($320,000 - $240,000) = 24.00%
Where $64,842 for the revised tax is computed as follows: $64,842 = $29,502 + 24% ($320,000 - $172,750). 
 

If Scot and Vidia instead had $80,000 of additional tax deductions, their marginal tax rate on the deductions would be 23.68 percent.

Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($26,697 -$45,642)/($160,000 - $240,000) = 23.68%
Where $26,697 for the revised tax is computed as follows: $26,697 = $9,328 + 22% ($160,000 - $81,050). 
 

42. [LO 3, LO 4] Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest.  Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething Inc. that pays 8 percent interest and has risk and other nontax characteristics similar to the City of Heflin bond.  Assume Melinda’s marginal tax rate is 25 percent. 
    1. What is her after-tax rate of return for the City of Heflin bond? 
       
       Since the City of Heflin bond is a tax-exempt bond, Melinda’s after tax rate of return on the bond is equal to its pretax rate of return (6 percent). 
    2. How much explicit tax does Melinda pay on the City of Heflin bond?
       
       Since the City of Heflin bond is a tax-exempt bond, Melinda pays no explicit tax on the interest earned from the City of Heflin bond.
    3. How much implicit tax does she pay on the City of Heflin bond?