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 inform . She received $73,000 in salary. • She received $15,500 of dividend income. . She received $4,100 of interest income on Home Depot bonds. • She received $25,000 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $10,000. . She received $8,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $5,700. • Mary only has allowable itemized deductions of $5,700, so she will take the standard deduction of $12,000 will be deducted from her gros income to determine her taxable income. Assume that her tax rates are based on Table 3.5. a. What is Mary's federal tax liability? Enter your answer as a positive value. Do not round intermediate calculations. Round your answert nearest cent. $ b. What is her marginal tax rate? Do not round intermediate calculations. Round your answer to one decimal place. % c. What is her average tax rate? Do not round intermediate calculations. Round your answer to two decimal places. %

Answer 1

Answer to part a:

Calculation of Federal Tax liability of Mary Jarvis:

Particulars	Amount
Salary Received	$     73,000.00
Divident Income	$     15,500.00
Interest income from Home depot bonds (Qualified dividend)	$       4,100.00
Income from Sale of Disney Stock ($25000-$10000)	$     15,000.00
Income from Sale of Google Stock ($8000-$5700)	$       2,300.00
Total Income	$ 1,09,900.00
Less: Standard Dedcutions (because itemized deductions are less)	$     12,000.00
Taxable Income	$     97,900.00
Applicable Slab: $82500-$157500
Base Tax (As per Slab)	$     14,089.50
Excess over the Base ($97900 less $82500)	$     15,400.00
Tax @24% on $15400	$       3,696.00
Total Federal Tax liability (14089.5+3696)	$     17,785.50

Answer to part b:

Applicable Marginal Rate: 24% (because taxable income is higher than $82500)

Anser to part c :

Average Tax Rate = Total federal tax liability divided by taxable income

$17785.5 divide by $97900

18.17% (approx)