Question

• She received $76,000 in salary. • She received $10,500 of dividend income. • She received $5,900 of interest income on Home Depot bonds. • She received $21,500 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $5,300. • She received $12,500 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $6,600. • 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. Open spreadsheet a. What is Mary's federal tax liability? Round your answer to the nearest cent. Do not round Intermediate calculations. b. What is her marginal tax rate? Round your answer to 1 decimal place. c. What is her average tax rate? Round your answer to 2 decimal places

Answer 1

1). Tax liability = $10,300

2). Marginal tax rate depends on the tax bracket. 24.3% as per the given table

3). Average tax rate = 10%

Explanation:

1). The calculation of the federal tax liability is shown below:

Total income = Salary + Dividend + Interest income + Selling amount of Disney stock + Sale of google stock

= $76,000 + $10,500 + $5,900 + $16,200 + $5,900

= $114,500

Taxable income = Net income - Itemized deduction - Exemption

= $114,500 - $7,500 - $4,000 = $103,000

It is assumed that the tax rate is 10%

Tax liability = $103,000 * 10%

= $10,300

2). Marginal tax rate can only be identified with the help of the table. The rate depends on the tax bracket in which the income of the person is included.

The taxable income is $103,000 which falls under $90,750-$189,750 , the amount of tax payable will be 18,481.25,24.3 %

3). Average tax rate = Tax / Taxable income

= $10,300 / $103,000

= 10%