Kim is working while taking college credits to earn a Bachelor\'s degree. She is

Question

Kim is working while taking college credits to earn a Bachelor's degree. She is financing her education herself through both her income and taking out student loans. Her eaarnings in 2010 were $30,000 before taxes. She paid $5,000 in tuition and paid $350 interest o nher student loan. In filing her state tax return form, Kim takes a deduction for tuition paid, and the interest paid on the loan. In taking these two deductions, by how much did she lower her taxable income? What is her taxable income now? What is her marginal tax rate? What will she owe in taxes for 2010?

Income Range Marginal Tax Rate

$1 - $8,375 10%

$8,372 - $34,000 15%

$34,000 - $82,400 25%

$82,400 - $171,850 28%

$171,850 - $373,650 33%

$373,650 and up 35%

Explanation / Answer

For 2010, as per 2010 publiction 970, Kim can deduct $ 2500 out of $ 5000 for tution fees and whole $ 350 for interest paid. Accordingly her income is lower by $ 5350. Her taxable income now is $ 30000-$5350 = $ 24650. Her Marginal Tax Rate is 15. Tax she would pay is $ 837.50 + $ 2441.25 = $ 3278.75

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