Calculate taxable income in this scenario, finance question. Fred Flick must cal
ID: 2647684 • Letter: C
Question
Calculate taxable income in this scenario, finance question.
Fred Flick must calculate his family's tax liability for 1994. During the year Fred received a salary of $45,000; his wife earned $35,000; they received dividend income of $5,500 on some stock they own; interest income on some Alabama state bonds of $3,500; interest income on some IBM bonds of $1,400. During the year Fred and his wife incurred state income taxes of $5,000; had medical expenses of $4,000; paid $900 in property tax on their home; inclined mortgage interest expense of $8,000; and contributed $10,000 to their favorite charities. Fred and his wife have two children. Each personal exemption is made at $3,350. Calculate their taxable income, tax liability, marginal tax rate, and average tax rate using the tax schedule given below.Explanation / Answer
Income Detail Fred His wife Salary 45,000 35,000 Dividend Income 5,500 5,500 Interest Income Alabama Bonds 3,500 3,500 Interest Income IBM Bonds 1,400 1,400 Total Gross Income 55,400 45,400 Expenses Detail State Income Taxes 5,000 5,000 Medical Expenses 4,000 4,000 Property tax on Home 900 900 Mortgage Interest Expense 8,000 8,000 Contribution to charities 10,000 10,000 Total Deductions 27,900 27,900 Personal Exemption 3,350 3,350 Taxable income = adjusted income ? (deductions + allowance for exemptions) 20,800 Taxable Income for Fred 3,120 Tax Liability falls in Slab 1 @15% of 20800 0.15 Average Tax = Total Taxes/Total Income Marginal Tax=Change in taxes/Change in Income 10,800 Taxable Income for Fred wife 1,620 Tax Liability falls in Slab 1 @15% of 10800 0.15 Average Tax = Total Taxes/Total Income Marginal Tax=Change in taxes/Change in Income
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