Chapter 3 Personal Taxes Mary Jarvis is a single individual who is working on fi

Question

Chapter 3 Personal Taxes

Mary Jarvis is a single individual who is working on filing her tax return for the previous year. She has assembled the following relevant information:

She received $94,000 in salary.

She received $18,500 of dividend income.

She received $8,000 of interest income on Home Depot bonds.

She received $25,000 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $5,600.

She received $12,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $6,800.

Mary receives one exemption ($4,000), and she has allowable itemized deductions of $7,500. These amounts will be deducted from her gross income to determine her taxable income.

1. What is Mary's federal tax liability? Round your answer to the nearest cent. Do not round intermediate calculations.

2. What is her marginal tax rate? Round your answer to 1 decimal place.

3.What is her average tax rate? Round your answer to 2 decimal places.

Table 3.5 2015 Individual Tax Rates Single Individuals You Pay This Amount on the Base ofthe Bracket Plus This Percentage Avage Tax If Your Taxable Income Is Up to S9,225 $9,225-$37,450 S37,450-$90,750 90,750-$189,750 S189,750-S411,500 S411,500-S$413,200 Over $413,200 on the Excess over the Rate at Rate Top of Bracket Base MAA 10.0% 15.0 25.0 28.0 33.0 35.0 39.6 10.0% 13.8 20.4 24.3 29.0 29.0 39.6 0 922.50 5,156.25 18,481.25 46,075.25 119,401.25 119,996.25 Married Couples Filing Joint Returns You Pay This Amount on the Base of the Bracket Plus This Percentage Avage Tax on the Excess over the If Your Taxable Income Is Up to $18,450 S18,450-S74,900 S74,900-S151,200 S151,200-$230,450 S230,450-$411,500 S411,500-$464,850 Over $464,850 Rate at Base (Marginal Rate 10.0% 15.0 25.0 28.0 33.0 35.0 39.6 10.0% 13.8 19.4 22.4 27.1 28.0 39.6 0 1,845.00 10,312.50 29,387.50 51,577.50 111,324.00 129,996.50

Explanation / Answer

Hey there !!

Let us calculate taxable income first.

Note : It is always beneficial to taked Standardised Deduction, but in question, no such information regarding the same is given, we will take Itemised deduction itself.

You can amend your answer accordingly if you get the information on taxability of capital gains.

Now the total taxable income falls within the slab of 90,750 to 180,750. So we will tax accordingly.

Now the Marginal Tax Rate is 28%

Average tax liab is 24.3%.

I hope the solution is clear to you now...all the best !!!

Do let me know in case of any concerns.

Particulars Amount Salary Income $94,000 Dividend Income $18,500 Interest Income from Home depot Bonds $8,000 Capital Gains from Sale of Disney Stock $19,400 Capital Gains from Sale of Google Stock $5,200 $145,100 Less : Itemised Deduction -$7,500 $137,600 Less: Exemption -$4,000 Total Taxable Income $133,600

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