An unmarried taxpayer with no dependents expects an adjusted gross income of $48

Question

An unmarried taxpayer with no dependents expects an adjusted gross income of $48,000 in a given year. His non-business deductions are expected to be $3400.

a) What will his federal income tax be?

b) He is considering an additional activity expected to increase his adjusted gross income. If this increase should be $16,000 and there should be no change in non-business deductions or exemptions, what will be the increase in his federal income tax?

Hints: Use Income Tax Rates illustrated in the textbook for the year 2009.

Explanation / Answer

The tax rate is applicable on the net income earned by the taxpayer. If x% be the tax rate, then this rate would be applicable on the (adjusted gross income - non-business deductions).

(a) Here, the net income of the person is, NY = $(48,000 - 3,400) = $44,600.

So, at x% rate of tax, the federal tax amount for this person would be, $44,600 * x% = $446 * x.

(b). The person is considering an additional activity, which would increase his gross income by $16,000; whereas his non-business deduction remains the same.

So, hid new level of net income is, NY' = $ (48,000 + 16,000 - 3,400) = $60,600.

Therefore, at x% rate of tax, his new federal tax amount would be, $60,600 * x% = $606 * x.

Hence, we could say that due to the increase in his gross adjusted income, the federal tax amount would certainly increase.

Note:

Just put the actual tax rate from your textbook in place of x% in order to get the exact result.

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