Question

2. Taxes paid for a given income level Van is getting ready to do his taxes. He is single and lives in New York City. Van earned $70,000 in taxable income in 2015. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2015. On Annual Taxable Income... The Tax Rate Is... (Percent) Up to $9,225 10.0 From $9,225 to $37,450 15.0 From $37,450 to $90,750 25.0 From $90,750 to $189,300 28.0 From $189,300 to $411,500 33.0 From $411,500 to $413,200 35.0 Over $413,200 39.6 Based on the IRS table, Van calculates that his marginal tax rate is   when his annual taxable income is $70,000. Van calculates that he owes   in income taxes for 2015. Van then calculates that his average tax rate is   , based on the annual income level and the amount of taxes he owes for 2015. After figuring out what he owes in taxes in 2015, Van decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $1,000 of taxable income from the federal government. The maximum amount that Van is willing to pay to learn this strategy and reduce his taxable income by $1,000 is   . (Hint: Sheltering some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in taxable income and shelters $10,000 pays income tax on only $40,000.)

Answer 1

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