Question

II. Monetary Policy and Explanation: ots. FEDERAL TAX SYSTEM. Tax 1. If the net profit from your business was $10,000 for this year and you added it to your personal taxable income of $135,000 for this year, according to the tax tables used in class, how much tax would you owe? a. Tax 1)

Answer 1

Points given in the question are as under:

Net profit from business for the year = $10,000

Personal taxable income for the year = $135000

1) Therefore, total taxable Income for the year = [ Net profit from business+ Personal taxable Income]

                                                              =$10000 + $135000

                                                              = $145000

2) As no information is available in the question it is assumed that there is no exemption available.

3) Therefore adjusted gross Income = [ Total taxable Income - Exemption]

                                                    = $145000

Standard deduction available as per federal system are as under:

year	Single	Married filing jointly	Married filing seperately	Head of households	Qualifying surviving spouse
2015	$6300	$12600	$6300	$9250	$12600

As the question is silent it is assumed that the taxable person is single.

Therefore, standard deduction for

Family 1 ( Does not understand the tax system)

4) Standard deduction is $6300

5) therefore taxable income = Adjusted gross income - Standard deduction

                                           =$145000 - $6300

                                           = $138700

6) Amount of tax liability ( information as per the chart (2015) given in the question for determing the tax liabilty)

For earning between $74900 to $151200 is 25 percent of the amount over $74900 + $10312.50

Therefore tax liability =[ ($138700 - $74900) *0.25] + $10312.50

                             = [ ($63800 *0.25)]+$10312.50

                             = $ 15950 + $10312.50

                             = $26262.50

7) A withholding allowance is a number that your employer uses to determine how much Federal and state income tax to withhold from your paycheck. The more allowances you claim on your Form W-4, the less income tax will be withheld from each paycheck.

The number of allowances you should claim varies. It is based on a number of factors, such as marital status, job status, earned wages, filing status, and child or dependent care expenses.

NOTE : As no infomation is given regarding withheld from paycheck we assumed that the amount withheld from paycheck is NIL i.e. $0

8) As amount withheld from paycheck is $0, therefore tax liablity = $26262.50

Family 2 ( Does understand the tax system)

As no itemwise deduction amount is given in the question it is assumed that standard deduction is opt by the taxable person.