Question

5. Chuck, a single taxpayer, earns $70,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. If Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income?

6. Chuck, a single taxpayer, earns $70,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. If Chuck claims an additional $40,000 of deductions, what is his marginal tax rate on this income?

7. Jorge and Anita, married taxpayers, earn $145,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe?

Answer 1

Ans. 5

Chuck $70,000 taxable income. He also earns interest $10,000 on investment in City of Heflin Bonds. But these bonds are exmpted for taxation hence will not get counted in taxable income. If he further earns $ 40,000 then his total taxable income will be $110000 and his marginal tax rate will be 50% as per below working --

Tax bracket $	Marginal Tax Rate%	Taxable Amount $	Tax Payable $
0 to 20,000	0	20000	0
20,000 to 40,000	10%	20000	2000
40,000 to 60,000	20%	20000	4000
60,000 to 80,000	30%	20000	6000
80,000 to 1,00,000	40%	20000	8000
1,00,000 above	50%	10000	5000
Total			25,000

Ans. 6

Chuck $70,000 taxable income. He also earns interest $10,000 on investment in City of Heflin Bonds. But these bonds are exmpted for taxation hence will not get counted in taxable income. If he further earns $ 40,000 then his total taxable income will be $110000 but claims deduction of $40,000 his marginal tax rate will be 30% as per below working --

Tax bracket $	Marginal Tax Rate%	Taxable Amount $	Tax Payable $
0 to 20,000	0	20000	0
20,000 to 40,000	10%	20000	2000
40,000 to 60,000	20%	20000	4000
60,000 to 80,000	30%	10000	2000
80,000 to 1,00,000	40%
1,00,000 above	50%
Total			8,000

Ans.7 J & Anita earn taxable income $ 145000. Additionally they earn $40000 as interest on Heflin bonds which is tax exempted . Hence $40,000 will not be included in their income. Both are filing jointly so are eligible for standard deducton of $24800. So they will owe total federal tax $18024 as per below working ---

Taxable income of both = 145000- std. deduction 24800 =120200

Tax Rate%	Slab for Married filing jointly $	Taxable Income$	Tax Payable$
10%	0- 19750	19750	1975
12%	19750-80250	60500	7260
22%	80250-171050	39950	8789
Avg. 12.43 %	Total	120200	18024