Question

Problem 1-35 (LO 1-3) Chuck, a single taxpayer, earns $86,000 in taxable income and $24,750 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule.) Required: a. If Chuck earns an additional $41,000 of taxable income, what is his marginal tax rate on this income? b. What is his marginal rate if, instead, he had $41,000 of additional deductions? (For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places.) * Answer is complete but not entirely correct. 24.00 O % Marginal tax rate a. 23.04 X % b. Marginal tax rate

Answer 1

(B) Marginal Tax Rate If he had $41000 additional deduction:

Explanation:

1) Taxable Income would be $ 45000 ( $86,000- $ 41,000)

2) Tax Schedule ( for 2019 single tax payer):

$39,476 - $84,200. : $4,543 plus 22% of the amount over $39,475

3) Tax: ( when income is $45000)

= $ 4543 + ( $ 45000- $39,475 × 22%)

= $ 4543 + ( $ 5525 ×22%)

= $ 4543 + $ 1215.5

=$ 5758.5

4) Tax: ( when income is $86000)

Tax schedule:

$84,201 - $160,725. : $14,382.50 plus 24% of the amount over $84,200

= $ 14,382.50 + ( $86000 - $84200 × 24%)

= $ 14,382.50 + $432

= $ 14814.5

5) Marginal Tax Rate:

= Change in Tax ÷ Change in taxable income

= ( $ 5758.5 - $ 14814.5 ) ÷ ( $ 45000 - $86000)

= $ 9056 ÷ $ 41000

= 22.09%