Question

Mary Jarvis is a single individual who is working on filing her tax return for the previous year. She has assembled the following relevant information: She received $94,000 in salary. She received $15,000 of dividend income. She received $8,700 of interest income on Home Depot bonds. She received $23,000 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $8,300. She received $8,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $7,800. Mary only has allowable itemized deductions of $7,800, so she will take the standard deduction of $12,000 will be deducted from her gross income to determine her taxable income. Assume that her tax rates are based on Table 3.5.

Table 3.5 2018 Individual Tax Rates Single Individuals If Your Taxable Income Is Up to $9,525 $9,525 - $38,700 $38,700 - $82,500 $82,500 - $157,500 $157,500 - $200,000 $200,000 - $500,000 Over $500,000 You Pay This Amount Plus This Percentage on Average Tax on the base of the the Excess over the Base Rate at Top of Bracket (Marginal Rate) Bracket $0.00 10.0% 10.0% 952.50 12.0% 11.5% 4,453.50 22.0% 14,089.50 24.0% 20.4% 32,089.50 32.0% 22.8% 45,689.50 35.0% 30.1% 150,689.50 37.0% 37.0% 17.1% Married couples Filing Joint Returns If Your Taxable Income is Up to $19,050 $19,050 - $77,400 $77,400 - $165,000 $165,000 - $315,000 $315,000 - $400,000 $400,000 - $600,000 Over $600,000 You Pay This Amount Plus This Percentage on Average Tax on the Base of the the Excess over the Base Rate at Top of Bracket (Marginal Rate) Bracket $0.00 10.0% 10.0% 1,905.00 12.0% 11.5% 8,907.00 22.0% 17.1% 28,179.00 24.0% 20.4% 64,179.00 32.0% 22.8% 91,379.00 35.0% 26.9% 161,379.00 37.0% 37.0%

What is Mary's federal tax liability? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent.

What is her average tax rate? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Federal Tax Liability
Tax on dividend income	$          2,250
Tax on long term Capital Gain	$          2,205
Tax on other income	$        16,106
Total Federal Tax liability	$        20,561

Calculations given below

Determine Taxable income
Particulars	Amount
Salary	$          94,000
Add : Interest	$            8,700
Add: Profit from sale of google stock	$                200
Add:Dividend Income	$          15,000
Add: Long term Capital Gain	$          14,700
Gross Income	$        132,600
Less: Standard Deduction	$        (12,000)
Taxable Income	$        120,600

Tax on dividend income	=	15000	*	15%
	=	$ 2,250

Tax on Long term Capital Gain	=	(23000-8300)*15%
(Disney stock)
	=	$ 2,205

Tax on income other than dividend and Long term Capital Gain
Particulars	Amount
Salary	$          94,000
Add : Interest	$            8,700
Add: Profit from sale of google stock (STCG)	$                200
Gross Income	$        102,900
Less: Standard Deduction	$        (12,000)
	$          90,900
Tax on Other income	=	24%* (90900-82500)+14089.50
	=	24%* (8400+14089.50)
	=	$        16,106

Average Tax rate	=	Paid Taxes/ Taxable income
	=	$ 20,561 / $ 120,600
	=	17.05%