Concept (LO. 2) executive with a taxable income of $129,600 in the curent year t
ID: 2517328 • Letter: C
Question
Concept (LO. 2) executive with a taxable income of $129,600 in the curent year taxpayer, is a retired computer interest. Adam and Tanya are married and have no children. She receives $33,900 per year in tax-exempt Adam and Tanya's $129,600 taxable income is comprised salely of wages they earm from their jobs bond $129,600 ta Do not round intermediate computations. Round your final answers to the nearest dollar. Assume that Adam and Tanya file jointly Sheila's tax is The difference in the tax rate schedules for single and maried taxpayers reflects the income level as married taxpayers. The tax rate structures ability to pay tax by single taxpayers at Y reflect the ability-to-pay concept.Explanation / Answer
Sheila is single and her income in the current year is $129,600. Her marginal tax rate is 24% (as $129,600 falls betweeen $82,500 to $152,500).
Sheila's tax = ($9,525*10%)+[($38,700-$9,525)*12%]+[($82,500-$38,700)*22%]+[($129,600-$82,500)*24%]
= $952.50+$3,501+$9,636+$11,304 = $25,393.50 or $25,394
Adam and Tanya are married and their taxable income is $129,600. Their filling status is married filling jointly. The marginal tax rate is 22% (as $129,600 falls betweeen $77,400 to $165,000).
Adam and Tanya's tax = ($19,050*10%)+[($77,400-$19,050)*12%]+[($129,600-$77,400)*22%]
= $1,905+$7,002+$11,484 = $20,391
The difference in tax rate schedules for single and married taxpayers reflects the greater ability to pay tax by single taxpayers at the same income level as married taxpayers.
However, in this case, the rate schedules do not adjust for the difference in economic incomes. Sheila's Economic income is $163,500 ($129,600 taxable income+$33,900 tax exempt income). Her effective tax rate on this income is 15.53% ($25,394/$163,500) versus a 15.73% ($20,391/$129,600) effective tax rate on Adam and Tanya's economic income. Therefore, even though the tax rate structures reflect the ability to pay concept, other provisions in the tax law that excludes items from income serve to negate the effect of the tax rate structures.
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