Question

Mr. Hoosier has gathered all these data about his finances.

Salary                                 $159,000

Taxable interest                 $5600

Municipal Bond interest           $20,000

Total Itemized deductions         $9500

The personal exemption is $4700. The standardized deduction for a single filer is 5000.

If Taxable Income is                               Then tax is:

0-8000                                             10% of the amount over 0

8000- 35,000                                          800 + 15% of the amount over 8000

35000- 55,000                                        4850 + 20% of the amount over 35000

55000- 150,000                               8850 + 30% of the amount over 55000

150000 – 200000                                   37350 + 35% of the amount over 150000

200000 and over                             54850 + 40% of the amount over 200000

      

a. What is his tax?

b. His average effective tax rate

c. His average tax rate

d. His marginal tax rate

e. Assume he discovers that he is eligible for a 500 tax deduction. How much does his tax liability fall with that addition?

f. Now he discovers that he is eligible for a $500 tax credit. How much does his tax liability fall due to this credit?

Answer 1

Mr. Hoosier has gathered all these data about his finances. Ang calculation of Taxable income Salary $159000 Taxable interest $ 5600 oss Total income $164, 6oo less: Total itemized dodations $9500 Clorser of itemiaed dedation q (asoo) or Standard (maximum limit) deduction (5000) Personal Cromition $4050 ($4700) Taxable income $ 151,050 a what is his taxa Tale $ 37,350 +354 (151,050-0000) 37,350 +357 X 1050 -37350 + 3675 - $ 37,719.5 b) Mis averose effective tax rate. = Total Tay I taxable income

- 37.717.5 / 151,050 -24 97-1 His averase tax rate! Effective Tax rate & Total Tax I Total income - 37.717.51164,600 - 22.94 tracted » His marginal tax rate Mr. Hoosiet is currently in the 35% tea rate Hence his marginal tax rate is 35). e Assume he discovers that he is eligible for a soo tax deduction If he eligible for a 500 Tax deduction. I Hence tax deductions lower your taxable income and they and isy are equal to the Percentage of Your marginal tax bracked i.e., 35). a $500 $175 now tax liability is $37,717 5 - $175 - $37,542.5. Now he discovers that the he is eligible for a 500 atau Credit & he Hence is eligible now tax for a 8500 tax credit is 39,717.5.500 = $31217.5