Chapter 1 Homework

Chapter 1 Homework
1. Campbell, a single taxpayer, earns $197,500 in taxable income and $9,000 in interest
from an investment in State of New York bonds.
a. How much federal tax will she owe?
$44,215.50 = $33,271.50 + 32% × ($197,500 − $163,300).
b. What is her average tax rate

Total tax $44,215.50
Average tax rate = = =22.39%
Taxable income $197,500
c. What is her effective tax rate?

Effective tax rate = = =21.41%
Total income ($197,500 + $9,000)
d. What is her current marginal tax rate?

Campbell is currently in the 32 percent tax rate bracket. Her marginal tax rate on
deductions up to $34,200 will be 32 percent. However, her marginal tax rate on
the next $9,850 of income will be 32 percent, and income earned over $204,100,
will be taxed at 35 percent.
2. Campbell, a single taxpayer, earns $416,000 in taxable income and $2,320 in interest
from an investment in State of New York bonds.
a. If Campbell earns an additional $15,800 of taxable income, what is her marginal
tax rate on this income?
($125,925.00 −
Change in tax
$120,395.00)
Marginal tax Rate = = = 35%
Change in taxable
($431,800 − $416,000)
income
b. What is her marginal rate if, instead, she had $15,800 of additional deductions?
($114,865.00 −
Change in tax
$120,395.00)
Marginal tax rate = = = 35%
Change in taxable
($400,200 − $416,000)
income
3. Jorge and Anita, married taxpayers, earn $187,500 in taxable income and $27,500 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? What is their average tax
rate? What is their effective tax rate? What is their current marginal tax rate?
a. Federal tax $33,159.00
$33,159.00 = $29,211.00 + 24% ($187,500 − $171,050).
b. Average tax rate 17.68%
c. Effective tax rate 15.42%

Effective tax rate = = =15.42%
Total income ($187,500 + $27,500)
d. Marginal tax rate 24.00%

Jorge and Anita are currently in the 24 percent tax rate bracket. Their marginal
tax rate on increases of income up to $139,100 and deductions up to $16,450 is
24 percent.
4. Jorge and Anita, married taxpayers, earn $140,000 in taxable income and $45,000 in
interest from an investment in City of Heflin bonds.
a. If Jorge and Anita earn an additional $102,500 of taxable income, what is their
marginal tax rate on this income?
Change in tax ($46,359 − $22,380)
Marginal tax rate = = =23.39%
Change in taxable income ($242,500 − $140,000)
b. What is their marginal rate if, instead, they report an additional $102,500 in
deductions?
Change in tax ($4,105 − $22,380)
Marginal tax rate = = =17.83%
Change in taxable income ($37,500 − $140,000)
5. Hugh has the choice between investing in a City of Heflin bond at 7.5 percent or
investing in a Surething Inc. bond at 10.5 percent. Assuming that both bonds have the
same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which
bond should he invest?
Hugh should invest in the City of Heflin bond
Explanation: Hugh’s after tax rate of return on the tax-exempt City of Heflin
bond is 7.5 percent. The Surething Inc. bond pays taxable interest of 10.5
percent. Hugh’s after tax rate of return on the Surething Inc. bond is 6.3 percent
(i.e., 10.5% interest income − (10.5% × 40%) tax = 6.3%). Hugh should invest in
the City of Heflin bond.
6. Given the following tax structure,

Taxpayer Salary Total Tax
Mae $ 20,500 $ 1,640
Pedro $ 41,000 $ 3,895
Venita $ 20,500 ???
What tax would need to be assessed on Venita to make the tax horizontally equitable?
Tax: $1,640
Horizontal equity means that two taxpayers in similar situations pay the same tax. Thus,
to make the tax structure horizontally equitable, Venita should pay $1,640 in tax.
7. Given the following tax structure,
Taxpaye
Salary Total tax
r
Mae $24,000$1,824
Pedro $65,000 ???

a. What is the minimum tax that Pedro should pay to make the tax structure
vertically equitable based on the tax rate paid? $4,941
Total tax $1,824
b. This would result in what type of tax rate structure? Progressive

This would be a progressive structure since the structure imposes an increasing
marginal tax rate as the tax base increases.

Chapter 1 Homework

Uploaded by

Copyright:

Available Formats

Chapter 1 Homework

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 1 Homework

Uploaded by

Copyright:

Available Formats

Chapter 1 Homework

b. What is her average tax rate

c. What is her effective tax rate?

d. What is her current marginal tax rate?

c. Effective tax rate 15.42%

d. Marginal tax rate 24.00%

6. Given the following tax structure,

7. Given the following tax structure,

b. This would result in what type of tax rate structure? Progressive

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.