Question

Leonardo, who is married but files separately, earns $95,500 of taxable income. He also has $11,000 in city of Tulsa bonds. His wife, Theresa, earns $42,000 of taxable income. If Leonardo instead had $38,000 of additional tax deductions for year 2018, his marginal tax rate on the deductions would be (use tax rate schedule)

Answer 1

For a married filing separately, if the taxable income is between $82,501 and $157,500 tax is payable as follows:

$ 14,089.16 plus 24% of the amount over $ 82,501

Therefore,

When L's taxable is $95,500, tax payable by him = $14,089.16 + ($95,500 - $82,500) x 24% = $ 17,209.16

Now, when L's income increases by $38,000, he will still remain in the same tax slab that is income between $82,501 and $157,500.

And, for a married filing separately, if the taxable income is between $82,501 and $157,500, tax payable is as follows:

$14,089.16 plus 24% of the amount over $82,501

Therefore, the addtional $38,000 will be taxed at the rate of 25%.

Thus, the marginal tax rate on the extra income for 2018 will be 24%.