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 $125,000 in salary.
• She received $12,500 of dividend income.
• She received $7,200 of interest income on Home Depot bonds.
• She received $22,000 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $5,200.
• She received $15,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $5,600.
• Mary receives one exemption ($4,000), and she has allowable itemized deductions of $7,500. These amounts will be deducted from her gross income to determine her taxable income.

Assume that her tax rates are based on Table 3.5. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

1. What is Mary's federal tax liability? Round your answer to the nearest cent. Do not round intermediate calculations.

   $

2. What is her marginal tax rate? Round your answer to 1 decimal place.

   %

3. What is her average tax rate? Round your answer to 2 decimal places.

   %

в с G H 1 Personal taxes 3 Salary $125,000.00 Tax Table for Single Individuals: 4 Dido Taxable income $12,500.00 $7,200.00 $22,000.00 $5,200.00 $15,000.00 $5,600.00 $4,000.00 $7,500.00 15.00% $0.00 $9,225.00 $37,450.00 $90,750.00 $189,750.00 $411,500.00 $413,200.00 Amount Paid on Base $0.00 $922.50 $5,156.25 $18,481.25 $46,075.25 $119,401.25 $119,996.25 Percentage on Excess over Base 10.00% 15.00% 25.00% 28.00% 33.00% 35.00% 39.60% Dividend Income 5 Interest Income 6 LT Stock Sale LT Stock Cost 8 ST Stock Sale 9 ST Stock Cost 10 Personal Exemption 11 Itemized Deductions 12 Apllicable Tax Rate on Dividends & LT Capital Gains 13 14 a. Calculation of Federal Tax Liability 15 Calculation of Taxable Income: 16 Salary 17 Interest Income 18 ST Capital Gains 19 Income hofaro Evomation and Norlutions Sheet1 Fomulas #NA #NA #NA NA

Answer 1

A . Summary of Introduction:-

To determine the federal tax liability.

1)Personal Taxes: The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss: Whenever security is bought or sold, there is a difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

Explanation of Solution

Calculation of the federal tax liability: Federal tax liability=(Tax on dividend income+Tax on long-term capital gain+Tax on other income)

Federal tax liability=($1875+$2250+$29500)=$33895

Working note: The calculation of taxable income: :
1. Income from salary is $125000.	125000
Income from investment includes
2. Dividend received is $12,500	12500	1875
3. Stock purchased is $5200. So, the capital gain is $16800 ($22000−$5200) .	16800	2520
DShe received $7,200 of interest income on Home Depot bonds.	7200
As the stock is held more than one year, as it is a long-term capital gain.
4. Another stock has been purchased six months back at $5600 and it is sold at $15,000. The capital gain is $9400 ($15,000−$5,600)	9400
5. The total income of the person subject to tax is $163700 ($125000+12500+16800+9400)	170900
6. As per federal guidelines, $4,000 exemption is available for the taxpayer and also for the dependents. Also, the itemized deduction will be $7,500.	11500
Total Gross Income	159400
Other Income (Salary and other)	130100	18481.25
Tax	39350	11018
		33894.25

B) To Determine The marginal tax rate.

Personal Taxes: The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society. Capital Gain or Loss: Whenever security is bought or sold, there is a difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax. c. Summary Introduction

C) To determine The average tax rate. Personal Taxes: The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society. Capital Gain or Loss: Whenever security is bought or sold, there is a difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.