Chapter 1 Exercises 34. Chuck, a single taxpayer, earns $75,000 in taxable incom

Question

Chapter 1 Exercises 34. Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule, how much federal tax will he owe? What is his average tax rate? What is his effective tax rate? What is his current marginal tax rate? 35. Using the facts in problem 34, if Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income? What is his marginal rate if, instead, he had $40,000 of additional deductions?

Explanation / Answer

Chuck's Taxable Income is $63000. after having standard deduction on taxbale income of $75000

Interest on City Of Heflin Bonds are exempted from Tax Hence are not Included in taxable Income.

8846.66

0.140423175

Marginal Tax Rate=for $24299 tax is @12% is $2915.88 the additional tax paid for increase of tax bracket is 2429.29 (5345.78-2915.88)

Interest on City Of Heflin Bonds are exempted from Tax Hence are not Included in taxable Income.

TAX upto $ 9525 Nil $9526-$38700 12% 3500.88 $38701-$82500 22% 5345.78

8846.66

Average tax rate = Taxable Income/ Total Tax = 63000/8846.66 = 7.121331666 Effective Tax rate = Total Tax/Taxable Income = 8846.66/63000 =

0.140423175

Marginal Tax Rate=for $24299 tax is @12% is $2915.88 the additional tax paid for increase of tax bracket is 2429.29 (5345.78-2915.88)

= 2429.29/8846.66 = 0.274600019 is marginal tax rate

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