Question

Calculation of Tax Liability, Marginal, Average and Effective Tax Rates (LO. 1) Susan is single with a gross income of $120,000 and a taxable income of $98,000. In calculating gross income, she properly excluded $10,000 of tax-exempt interest income. paid on the next dollar of income v The marginal tax rate is the rate of tax that would a. The average tax rate is the rate of tax paid on the total tax base v b. The effective tax rate is the rate of tax paid on all income v C. Instructions: Do not round intermediate computations. Round final answers to two decimal places. Refer to the tax rate schedule for calculations. V %, d. Susan's total tax is $ 17,693.76 X . Her marginal tax rate is 24 16.38 V %. 18.05 X %, and, effective tax rate is average tax rate is

Answer 1

Answer

1. Taxable Income

Gross Income - Generally, the term gross income refers to the total amount of income of an individual over a period. For income tax purpose, gross income is defined as all the income from whatever source derived, unless excluded by government

Tax computation: single taxpayer rate schedule for 2017.

Taxable Income $ 98,000

Tax on 91,900 $18,713.75

Excess $ 6,100

Taxed at Marginal Ratex 28% 1,708.00

Total Tax $20,421.75

b.The marginal tax rate is the rate of tax that would be paid on an additional dollar of income. At a taxableincome of $98,000, a single taxpayer would be in the 28% marginal tax rate bracket (from the calculationabove).

c.The average tax rate is the rate of tax paid on the total tax base; the total tax divided by taxable income.In this case, the total tax is $20,421.75 on a taxable income of $98,000, which gives an average tax rate of20.84%:

20.84% = ($20,421.75 tax $98,000 taxable income)

d.The effective tax rate is the rate of tax paid on all income (taxable and nontaxable). The total tax paid isdivided by the taxpayer's economic income (taxable income + nontaxable income). In this case, Susanhas $10,000 of tax-exempt income that increases her economic income to $108,000 ($98,000 taxable +$10,000 nontaxable). This results in an effective tax rate of 18.91%:

18.91% = ($20,421.75 tax $108,000 economic income)

rate is the rate of tax that would be paid on an additional dollar of income. At a taxableincome of $98,000, a single taxpayer would be in the 28% marginal tax rate bracket (from the calculationabove).

c.The average tax rate is the rate of tax paid on the total tax base; the total tax divided by taxable income.In this case, the total tax is $20,421.75 on a taxable income of $98,000, which gives an average tax rate of 20.84%

D. The effective tax rate is the rate of tax paid on all income (taxable and nontaxable). The total tax paid isdivided by the taxpayer's economic income (taxable income + nontaxable income). In this case, Susanhas $10,000 of tax-exempt income that increases her economic income to $108,000 ($98,000 taxable +$10,000 nontaxable). This results in an effective tax rate of 18.91 %

:18.91% = ($20,421.75 tax $108,000 economic income