Question

Financial Planning Exercise 1 Estimating taxable income, tax liability, and potential refund Sophia Johnson is 24 years old and single, lives in an apartment, and has no dependents. Last year she earned $37,800 as a sales assistant for Office Furniture Rentals; $3,024 of her wages was withheld for federal income taxes. In addition, she had interest income of $151. The standard deduction in 2014 was $6,200 for single. The exemption was claimed to be worth $3,950. The appropriate tax rate schedule is shown below: EXHIBIT 3.3 Sample Tax Rate Schedules Tax rates levied on personal income vary with the amount of reported taxable income and the taxpayer's filing status. 2014 Tax Rate Schedules Schedule X-If your filing status is Single The tax is: If your taxable income is: But not over- of the amount over- Over- $0 ----_10% $907.50 + 15% 9,075 36,900 5,081.25 + 25% 9,075 36,900 89,350 186,350 405,100 406,750 $9,075 36,900 89,350 186,350 405,100 406,750 ----- 18,193.75 + 28% 45,353.75 + 33% 117,541.25 + 35% 118,118.75 + 39.6% 89,350 186,350 405,100 406,750 a. Estimate her taxable income. $ 31751 b. Estimate her tax liability. Round the answer to the nearest cent. Use unrounded values in later calculations. (Hint: Use the tax rate schedules given in Exhibit 3.3 to determine her tax liability.) c. Estimate her tax refund or tax owed. Enter tax owed, if any, as negative amount. Round the answer to the nearest cent.

Answer 1

a. Estimate her taxable income.

$31751

Computation:-

Salary Income	37800
Interest Income	151
Less: Standard Deduction	6200
Taxable Income	31751

b. Tax Liability:-

$4308.90

Computation:-

2014 Tax Rates
$0 to $9,075	907.50	10%
$9,075 to $31,751	3401.40	15%
Tax Liability	4308.90

c. Tax Refund

$2665.10

Computation:-

Tax liability	4308.90
Less:- Tax withheld	3024.00
Less:- Exemption	3950.00
Tax Refund	2665.10