Question

Sandy is a single and has the following situation for the year: Sandy's income of $80,000; dividend income of $20,000; interest income of $2,000; short-term capital gain of $8,000 and long-term capital gain of 14,000. She also paid $1,000 on interest charges on her credit card. Her other total exemptions and itemized deductions is 22,000; these amounts will be deducted from her gross income to determine her taxable income. If she is files as a single individual, what is Sandy's marginal tax rate? Use the individual tax rate provided below. Individual Tax Rates: Single Individual Taxable Income You Pay This Amount on the Base of the Bracket Plus This Percentage on the Excess over the Base (Marginal Rate) Average Tax Rate at the Top of Bracket Up to $8925 $0 10.0% 10.0% $8925-36350 $892.50 15.0 13.8 $36250-87850 $4991.25 25.0 20.4 $87850-183250 $17891.25 28.0 24.3 183250-398350 $44603.25 33.0 29.0 $398350-400000 $115586.25 35.0 29.0 Over $400000 $116163.75 39.6 39.6 A. 10.0% B. 20.0% C. 25.0% D. 28.0% E. None of the above

Answer 1

SOLUTION - D. 28%

Type of Tax payer : Single Individual

As in the given details, we have Incomes and deductions for calculation of taxable income. Taxable income is gross income as adjusted minus deductions. Taxable income is taxed at the given Marginal Tax rate. Gross income includes all income earned or received from whatever source. This includes salaries and wages, tips, pensions, fees earned for services, price of goods sold, other business income, gains on sale of other property, rents received, interest and dividends received, proceeds from selling crops, and many other types of income.

In Our Question Gross income includes Salary income, Dividend income, Short term capital gain, Interest. Interest Expense is not deductible as it is paid from credit card and return is of Individual. However, individuals are taxed at a lower rate on long term capital gains. so Long term capital gain is excluded for the purpose of deciding Maximum Marginal rate.

Working

Particulars	Amount ($ )
Income	$ 80000
Dividend	$ 20000
Interest Income	$ 2000
Short Term Capital Gain	$ 8000
Exemption/ Dedution	$ -22000
Taxable Income	$ 88000

Sandy has taxable income of $ 88000 which is taxed at Marginal tax rate and Which falls under Slab $87850-183250. The mentioned slab contained marginal tax rate is 28%.

Answer - D. 28%