Question

Jorge and Anita, married taxpayers, earn $144,500 in taxable income and $54,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule for married filing jointly). Required: If Jorge and Anita earn an additional $107,000 of taxable income, what is their marginal tax rate on this income? What is their marginal rate if, instead, they report an additional $107,000 in deductions? (For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Particulars	Calculations	Present Scenario
Taxable Income		144,500.00	A
Calculation of Federal Tax:
Upto $ 19,050 @ 10%	1,905.00
$ 19,051 to $ 77,400 @ 12%	7,001.88
Balance $ 43,100 @ 22%	14,762.00
Total Federal Tax		23,668.88	C
Average Tax Rate		16.38%	D=C/A
If there is additional income		107,000.00	E
Revised Taxable Income		251,500.00	F= A+E
Calculation of Federal Tax:
Upto $ 19,050 @ 10%	1,905.00
$ 19,051 to $ 77,400 @ 12%	7,001.88
$ 77,401 to $ 165,000 @ 22%	19,271.78
Balance $ 86,500 @ 24%	20,760.00
Total Federal Tax		48,938.66	G
Differential Federal Tax		25,269.78	H=G-C
Marginal Tax Rate		23.62%	I=H/E
If there is additional deduction		107,000.00	J
Revised Taxable Income		37,500.00	K=A-K
Calculation of Federal Tax:
Upto $ 19,050 @ 10%	1,905.00
Balance $ 18,450 @ 12%	2,214.00
Total Federal Tax		4,119.00	L
Differential Federal Tax		(19,549.88)	M=L-C
Marginal Tax Rate		18.27%	N=M/(-J)