Question

Marginal tax rate Partner​ A, a single​ taxpayer, is one of two partners in a small business. As​ such, she receives​ pass-through income that is taxed at her personal tax rates. After all adjustments and deductions have been​ made, including the​ 20% qualified business income​ deduction, she is preparing to calculate her taxes owed for the year. Using the tax rate schedule given below perform the​ following:

Marginal tax rates Partner A, a single taxpayer, is one of two partners in a small business. As such, she receives pass-through income that is taxed at her personal tax rates. After all adjustments and deductions have been made, including the 20% qualified business income deduction, she is preparing to calculate her taxes owed for the year. Using the tax rate schedule given here , perform the following: a. Find the marginal tax rate for the following levels of sole proprietorship earnings before taxes: $13,300; $60,700; $91,800, $148,000; $245,000, $448,000, and $1.4 million. b. Plot the marginal tax rates (measured on the y-axis) against the pretax income levels (measured on the x-axis). Explain the relationship between these variables. a. The marginal tax rate for earnings before taxes of $13,300 is %. (Round to the nearest integer.)

a. Find the marginal tax rate for the following levels of sole proprietorship earnings before​ taxes:

$13,300​

$60,700​;

$91,800​;

$148,000​;

$245,000​;

$448,000​;

$1.4 million.

b. Plot the marginal tax rates​ (measured on the y-​axis) against the pretax income levels​ (measured on the x-​axis). Explain the relationship between these variables.

Answer 1

TAX CALCULATION = BASE TAX + ( MARGINAL RATE AMOUBT OVER BASE BRACKET) a. $ 13,300 = 953 + ( 12% [ 13,300 - 9525] = 953 +453 = 1406 b. $60700 = 4454 + (22% [ 60700 - 38700]) = 4454 + 4840 = 9294 C. $91800 = 14090 + ( 24% x [91800-82500] ) = 14090+ 15720=29810 d. $245000= 45690+(35% x [245000-200000])= 45690+15750=61440 48000= 45690+ (35%x[448000-200000])= 45690+ 86800=132490 f. $1.4 million= 150690+(37%x[14000000-500000])=150690+333000= 483690 As the US tax system is progressive the income falls in to more than one bracket ,so more than one tax rate can apply to income.It is important that the tax brackets apply to taxable income. Marginal tax rates are important because it can help you understand the tax consequence of earning additional income or taking certain deductions