Question

Sul Help Save & Exit I The following table shows the U.S.rates of personal tax as of year 2016, and these tax rates presented in this table are marginal tax rates. Single Taxpayers Married Taxpayers Filing Joint Returns Tax Rate (1) 0-$9,275 0-$18,550 10.0 $9,276-$37,650 $18,551-$75,300 15.0 $37,651-$91,150 $75,301-$151.900 25.0 $91,151-$190,150 $151,901-$231.450 28.0 $190.151-$413,350 $231451-$413,350 33.0 $413,351-$415,050 $413,351-$466,950 35.0 $415,051 and above $466.951 and above 39.6 Based on this table, answering the following questions: (Please show your intermediate processes, instead of just a final number for your answers. Only round your final answers to two decimal places) al. Suppose there is a person called Alpha who has an annual income of $300,000 and Alpha's spouse has an annual income of $20,000. What doilar amount of tax do Alpha and Alpha's spouse each need to pay respectively, if they choose to file their taxes separately? What dolor amount of tax they need to pay if they choose to file their taxes jointly? 22. What are teh average tax rates for Alpha and Alpha's spouse respectively, if they choose to flle separately? What is the average tax rate if they choose to file jointly? b1. Suppose there is another person called Beta who has an annual income of $160,000 and Beta's spouse also has an annual income of $160,000. What dollar amount of tax do Beta and Beta's spouse each need to pay respectively, if they choose to file their taxes separately? What dollar amount of tax they need to pay if they choose to file their taxes Jointly? b2. What are the average tax rates for Beta and Beta's spouse respectively, if they choose to file separately? What is the average tax rate if they choose to file Jointly? c. Based on what you obtained from at to b2, what are the conclusions you could infer regarding the ways of filing taxes? (what are the advantages and disadvantages of these two ways?)

Answer 1

Answer :

Part a1 )

Alpha's annual income = $300,000

Alpha's spouse annual income = $20,000

Amount of tax if taxes are filed separately :

Alpha's =

0-9275 = 10% = 9275*10% = 927.50

9275-37650 = 15% =(37650-9275)*15% = 4256.25

37651-91150 = 25% = (91150-37650)*25% = 13,375

91151 - 190,150 = 28% = (190150 - 91150)*28% = 27,720

190151 - 413350 = 33% = (300,000 - 190150)*33% = 36250.50

Total tax amount of Alpha = 82,529.25

Alpha's Spouse =

0-9275 = 10% = 9275*10% = 927.50

9275-37650 = 15% =(20,000-9275)*15% = 1608.75

Total tax amount for Alpha's Spouse = 2536.25

Total tax for both = 82,529.25+ 2536.25 = 85065.50

Tax amount If taxes are filed jointly : Total income = 300,000 + 20,000 = 320,000

0-18550 = 10% = 18,550*10% = 1855

18551-75300 = 15% = (75300-18550)*15% = 8512.50

75301-151900 = 25% = (151900-75300)*25% = 19150

151901- 231450 = 28% =(231450-151900)*28% = 22,274

231451- 413350 = 33% = (320,000-231450)*33% = 29,221.50

Total amount of tax = 81,013

Part a2 ) :

Average income tax rate = total taxes/ total taxable income

Average income tax rate if taxes are filed separately = 85,065.50/320,000 = 26.58%

Average ioncome tax rate if taxes are filed jointly = 81,013/320,000 = 25.32%

Part b1)

Beta's annual income = $160,000

Beta's spouse annual income = $20,000

Amount of tax if taxes are filed separately :

Beta's =

0-9275 = 10% = 9275*10% = 927.50

9275-37650 = 15% =(37650-9275)*15% = 4256.25

37651-91150 = 25% = (91150-37650)*25% = 13,375

91151 - 190,150 = 28% = (160100 - 91150)*28% = 19278

Total amount of tax of beta = 37,836.75

Beta's Spouse =

0-9275 = 10% = 9275*10% = 927.50

9275-37650 = 15% =(37650-9275)*15% = 4256.25

37651-91150 = 25% = (91150-37650)*25% = 13,375

91151 - 190,150 = 28% = (160100 - 91150)*28% = 19278

Total amount of tax of beta's spouse = 37,836.75

Total amount of tax for both = 37836.75 + 37836.75 = 75673.50

Tax amount If taxes are filed jointly : Total income = 300,000 + 20,000 = 320,000

0-18550 = 10% = 18,550*10% = 1855

18551-75300 = 15% = (75300-18550)*15% = 8512.50

75301-151900 = 25% = (151900-75300)*25% = 19150

151901- 231450 = 28% =(231450-151900)*28% = 22,274

231451- 413350 = 33% = (320,000-231450)*33% = 29,221.50

Total amount of tax = 81,013

Part b2 ) :

Average income tax rate if taxes are filed separately = 75,673.50/320,000 = 23.65%

Average ioncome tax rate if taxes are filed jointly = 81,013/320,000 = 25.32%

Part c)

Based on the calculations obtained from a1 to b2, we can see that it is beneficial to file return jointly in alpha's case and it is beneficial to file separate taxes in case of Beta.

Therefore, depending upon case to case the benefits and disadvantges of filing taxes separate or joint can be assessed.

Generally, it's better to file jointly when you're married as you'll get double the standard deduction and have full access to valuable deductions and credits to lower your tax liability

Separate tax returns may give you a higher tax with a higher tax rate. The standard deduction for separate filers is far lower than that offered to joint filers. When one spouse can lower taxable income this way, married filing separately might reduce a couple's overall tax liability.