Question

1.)   Chuck, a single taxpayer, earns $85,000 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?
2.)   Chuck, a single taxpayer, earns $85,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. What is his average tax rate? (Carry your answer two decimals, i.e., 20.05)
3.)   Chuck, a single taxpayer, earns $85,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. What is his effective tax rate?
4.)   Chuck, a single taxpayer, earns $85,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. What is his current marginal tax rate?
5.)   Chuck, a single taxpayer, earns $85,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. If Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income?
6.)   Chuck, a single taxpayer, earns $85,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. If Chuck claims an additional $40,000 of deductions, what is his marginal tax rate on this income?
7.)   Jorge and Anita, married taxpayers, earn $160,000 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, how much federal tax will they owe?
8.)   Melinda invests $300,000 in a City of Heflin bond that pays 6.4 percent interest. Alternatively, Melinda could have invested the $300,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda's marginal tax rate is 20 percent. What is her after-tax rate of return for the City of Heflin bond?
9.)   Melinda invests $300,000 in a City of Heflin bond that pays 6.4 percent interest. Alternatively, Melinda could have invested the $300,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda's marginal tax rate is 20 percent. How much implicit tax does she pay on the City of Heflin bond?
10.)   Melinda invests $300,000 in a City of Heflin bond that pays 6.4 percent interest. Alternatively, Melinda could have invested the $300,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda's marginal tax rate is 20 percent. How much explicit tax would she have paid on the Surething, Inc. bond?
11.)   Melinda invests $300,000 in a City of Heflin bond that pays 6.4 percent interest. Alternatively, Melinda could have invested the $300,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda's marginal tax rate is 20 percent. What is her after-tax rate of return on the Surething, Inc. bond?
12.)   Hugh has the choice between investing in a City of Heflin bond at 6 percent or a Surething bond. Assuming that both bonds have the same nontax characteristics and that Hugh has a 28 percent marginal tax rate. What interest rate does Surething, Inc. need to offer to make Hugh indifferent between investing in the two bonds?

***If someone could help me understand all twelves of these problems, it would be extremely appreciated. This is my week one homework for a tax class. To elaborate a bit more, I would like the answers to all twelves questions, but also an explanation of how you got to those answers. Thanks!

Answer 1

U.S. Tax Schedule 2019 for single Filer:

Single Filers	Income (Federal Tax Rate)	Net Investment Income (Federal Tax Rate)
$0 - $9,700	10%	-
$9,701 - $39,375	12%	-
$39,376 - $39,475	12%	-
$39,476 - $84,200	22%	-
$84,201 - $160,725	24%	-
$160,726 - $200,000	32%	3.8%
$200,001 - $204,100	32%	3.8%
$204,101 - $434,550	35%	3.8%
$434,551 - $510,300	35%	3.8%
$510,301 and above	37%	3.8%

Answer of part 1)

Taxable income $ 85,000

Interest from Investment $ 10,000

Federal Tax on income will be:

Slab	Tax Rate	Tax Amount
$0 - $9,700	10%	$970.00
$9,701 - $39,375	12%	$3,561.00
$39,376 - $39,475	12%	$12.00
$39,476 - $84,200	22%	$9,839.50
$84,201 - $85,000	24%	$192.00
Total		$14,574.50

Tax on interest income will be Nil

Answer of part 2)

Average tax = Tax / Taxable Income

Hence Average tax will be = $14,574.50 / $85,000 = 17.14647%

Answer of part 3)

Effective tax = Tax / Total Income

Hence Effective tax will be = $14,574.50 / $95,000 = 15.34158%

Answer of part 5)

Tax on Inome of $125,000 will be $24,174.50

Marginal Tax Rete = Change in Tax / Change in taxable income

Hence Marginal Tax Rate will be = $9,600 / $40,000 = 24%