Question

Mary Jarvis is a single individual who is working on filing her tax return for the previous year. She has assembled the following relevant information: • She received $106,000 in salary • She received $15,000 of dividend income. • She received $6,200 of interest income on Home Depot bonds. . She received $25,000 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $5,500. • She received $9,500 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $7,300, • Mary receives one exemption ($4,000), and she has allowable itemized deductions of $7,500. These amounts will be deducted from her gross income to determine her taxable income. Assume that her tax rates are based on Table 3.5. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X2 Open spreadsheet

Answer 1

Please find attached excel computation with references for easy understanding of the computations:

a. Calculation of federal tax liability Calculation of taxable income: Salary Interest Income ST capital Gain ($9500-$7300) Income before exemption and deductions Personal Exemption Itemized Deduction | Taxable income before Dividends and LT Capital gains 106,000.00 A 6,200.00 B 2,200.00 C 114,400.00 D=A+B+C 4,000.00 E 7,500.00 F 102,900.00 G=D-E-F Taxes on taxable income before dividends and LT capital gains Tax liability on base of bracket (upto $90750) 18,481.25 Tax Liability on excess of base ($102900-$90750)* 28% 3,402.00 (G-90750)* 28% Tax on taxable income before dividends and LT capital gains 21,883.25 H Taxes on Dividends and LT capital gains Dividend Income LT capital gain income ($ 25000 - $ 5500) Total Dividends and LT Capital gains income Tax on Dividends and LT capital gain income @ 15% 15,000.00 19,500.00 34,500.00 K=I+) 5,175.00 LEK*15% Total Federal tax liability 27,058.25 M=H+L b. Calculation of Marginal Tax Rate tax slab in which additional $1 in excess of $ 28% 102,900 will be taxed for Marginal Tax Rate c. Calculation of Average Tax Rate Average Tax Rate 19.69% M/(G+K)

a) $ 27,058.25

b) 28%

c) 19.69%