Question

750 4. The Millers, a family of three filing joint returns, have the following infor- mation to prepare their federal income tax. Use the current federal tax forms (available at the local IRS office) to make your computation. Salaries 45,000 Interest income, corporate bonds 1,000 Interest income, municipal bonds (issued in 1984) 1,500 State and local income taxes 800 Real estate taxes General sales taxes 750 Home mortgage interest 3,350 Credit card interest Cash contributions to charities 250 Interest on education loans 400 Compute the following: a. Adjusted gross income b. Taxable income c. Tax d. Average tax rate e. Average effective-tax rate f. Marginal tax rate 500

Answer 1

1. Adjusted gross income = salaries+ corporate bonds – interest on education loans
2. Taxable income = Adjusted gross income- states and local taxes –income taxes- home mortgage interest- gifts to charity. The total deduction comes from the form schedule A (attached)
3. Average tax rate = total amount o taxes paid/ total taxable income.
4. 4476/40450=0.1106=11.06%
5. Marginal tax rate= 11.06% in this case is the same because there is not difference in the taxes paid on the next dollar of income.

the credit card interest is not deductable

and you can not deduct both state income taxes and general sales taxes, so you should compute the higher one in order to get a higher deductable amount and decrease the taxes to pay.

in this case. to get the taxes to pay you can use the instructions on the taxes tables