2. Taxes paid for a given income level Musashi is getting ready to do his taxes.
ID: 1191431 • Letter: 2
Question
2. Taxes paid for a given income level
Musashi is getting ready to do his taxes. He is single and lives in Chicago. Musashi earned $200,000 in 2011. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2011.
On Annual Taxable Income...
The Tax Rate Is...
(Percent)
Based on the IRS table, Musashi calculates that his marginal tax rate is ...............(fill in the blanks one of the following 10% 15% 25% 28% 33% 35%) when his annual income is $200,000.
Musashi calculates that he owes ...............( fill in the blanks with one of the following $42,449 $46,997, $50,047,$50,897, $66,000) in income taxes for 2011.
Musashi then calculates that his average tax rate is , based on the annual income level and the amount of taxes he owes for 2011.
After figuring out what he owes in taxes in 2011, Musashi decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $2,000 of taxable income from the federal government.
The maximum amount that Musashi is willing to pay to learn this strategy and reduce his taxable income by $2,000 is .................(fill in the blans with the following $0,$500,$660,$2000) . (Hint: Sheltering some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in income and shelters $10,000 pays income tax on only $40,000.)
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On Annual Taxable Income...
The Tax Rate Is...
(Percent)
Up to $8,500 10 From $8,500 to $34,500 15 From $34,500 to $83,600 25 From $83,600 to $174,400 28 From $174,400 to $379,150 33 Over $379,150 35Explanation / Answer
Musashi calculates that his marginal tax rate is 33%, when his annual income is $200000.
Musashi calculates that he owes $50897 in income taxes for 2011.
Musashi then calculates that his average tax rate is 25.45%, based on the annual income level and the amount of taxes he owes for 2011.
The maximum amount that Musashi is willing to pay to learn this strategy and reduce his taxable income by $2,000 is $660. Even if he shelters $2000 from income his income slabs remains the same and the tax saved will be 33% of 2000 which is $660.
Income Tax % Tax amount 8500 10% 850 26000 15% 3900 49100 25% 12275 90800 28% 25424 25600 33% 8448 200000 25.45% 50897Related Questions
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