Question

In: Accounting

Mr. and Mrs. Jerald own a dry cleaning business that generates $156,750 taxable income each year....

Mr. and Mrs. Jerald own a dry cleaning business that generates $156,750 taxable income each year. For the past few years, the couple’s federal tax rate on this income has been 32 percent. Congress recently increased the tax rate for next year to 40 percent.

Required:

Based on a static forecast, how much additional revenue will the federal government collect from Mr. and Mrs. Jerald next year?
How much additional revenue will the government collect if Mr. and Mrs. Jerald respond to the rate increase by working harder and earning $171,750 next year?
How much additional revenue will the government collect if Mr. and Mrs. Jerald respond to the rate increase by working less and earning only $141,750 next year?

could you explain how you got the answer? Thank you.

Expert Solution

1. Current Year Income of Mr and Mrs Jerald = $156,750

Tax Rate in current year = 32%

Total Tax revenue of the government (current year ) when tax rate is 32% = 156,750 * 0.32= 50,160

Now Congress proposed to increase federal tax rate to 40% next year

Total Tax revenue earned by the government next year when tax rate is 40% = 156,750 * 0.40= 62,700

Additional Tax revenue earned by government because increase tax rate = 62,700 – 50,160= 12,540 $

2. When the income of Mr and Mrs Jerald increased to $ 1,71,750 next year

Tax rate applicable next year = 40%

Tax revenue earned by the government (next year) when tax rate is 40% = 171,750 * 0.4 = 68700

Total Tax revenue of the government (current year) when tax rate is 32% = 156,750 * 0.32= 50,160

Additional Tax revenue earned by government = 68,700 – 50,160 = 18,540 $

3. When the income of Mr and Mrs Jerald is $ 141,750 next year

Tax rate applicable next year = 40%

Tax revenue earned by the government (next year) when tax rate is 40% = 141,750 * 0.4 = 56,700

Total Tax revenue of the government (current year) when tax rate is 32% = 156,750 * 0.32= 50,160

Additional Tax Revenue earned by the government = 56,700 – 50,160 = $ 6,540

Analysis of third question : It can be concluded that even though there is decrease in income of the couple but due to increase tax rate their tax payment will increased as in comparison to previous years.

ekkarill92 answered 2 years ago

Mr. and Mrs. HenryHenry file a joint return and have taxable income of $ 380,000 without...

Mr. and Mrs. HenryHenry file a joint return and have taxable income of $ 380,000 without considering the following independent fact situations. a. They have a STCG of $ 31,000 and a LTCL of $ 20,000 b. They have a LTCG of $24,000 due to the sale of a collectible and a LTCG of $12,500 due to the sale of General Motors stock. c. Same as Part b except they also have a STCL of $4,500. Requirement Determine the increase...

Mr. and Mrs. Sedlock file a joint return and have a taxable income of $370,000 without...

Mr. and Mrs. Sedlock file a joint return and have a taxable income of $370,000 without considering the following information below. Determine the increase in their tax liability for the following independent fact situations. a. They have a STCG of $20,000 and a LTCL of $12,000. b. They have a LTCG of $30,000 due to the sale of a collectible and a LTCG of $9,000 due to the sale of General Motors stock. c. Same as part b except they...

Neil and Joan a Missile and sister duo own a small dry cleaning business. NeJoWe Cleaners!...

Neil and Joan a Missile and sister duo own a small dry cleaning business. NeJoWe Cleaners! provides several services to its customers: dry cleaning of clothes and household linen, laundry, ironing, repair work and clothing alterations. They currently have 5 locations across the capital city, with the sixth location being that of the main office were most of the cleaning and laundry is carried out. NeJoWe has been in business for about ten years and believe that personal contact with...

QUESTION 1 : Mr. Brown and Mr. Black own cleaning companies. They are considering renting a...

QUESTION 1 : Mr. Brown and Mr. Black own cleaning companies. They are considering renting a small sweeper to share between their two separate businesses. Mr. Brown requires the machine for a total of 900 hours and Mr. Black 600 hours. If each company rents the machine on their own, the hourly rate is $40. If they rent the machine together the hourly rate drops to $32. a) Calculate Mr. Brown’s and Mr. Black’s respective share of the cost using...

Mr. and Mrs. Poe earned $115,900 compensation income and $963 interest this year and recognized a...

Mr. and Mrs. Poe earned $115,900 compensation income and $963 interest this year and recognized a $600 short-term capital gain and a $7,200 long-term capital gain on the sale of securities. They incurred $4,400 investment interest expense and $25,500 other itemized deductions. Use Individual tax rate schedules and Tax rates for capital gains and qualified dividends. Compute the Poe’s income tax on a joint return if they don’t elect to treat long-term capital gain as investment income. Compute the Poe’s...

In the past year, the price of dry-cleaning solvent doubled. More than 4,000 dry cleaners across...

In the past year, the price of dry-cleaning solvent doubled. More than 4,000 dry cleaners across the United States disappeared as budget-conscious consumers cut back. This year the price of hangers used by dry cleaners is expected to double. Source: CNN Money, June 4, 2012 Please answer the following questions in graph(S-D Curve) !!!!!!!!! show in a graph for each!!!!!!! a. Explain the effect of rising solvent prices on the market for dry cleaning. show in graph. b. Explain the...

Mr. and Mrs. Brown have never made a taxable gift. They have four children and ten...

Mr. and Mrs. Brown have never made a taxable gift. They have four children and ten grandchildren. Mr. and Mrs. Brown both have wills that leave their entire property to the other when one dies. They figure that there will be no estate taxes when the first spouse dies. What’s wrong with this strategy if they want their kids to enjoy their wealth after they are gone? What other things can you suggest to them to minimize their gift taxes?

You own a chain of 3 dry-cleaning stores in a medium-size town. A problem in customer...

You own a chain of 3 dry-cleaning stores in a medium-size town. A problem in customer service has surfaced recently. When you spend the day, or even part of the day in a particular store, clerks seem to provide excellent customer service, spotters are making sure all stains are removed from garments, and pressers are doing a good job of pressing difficult items such as silk blouses. Yet during those same visits, customers complain to you about such things as...

1. Carlos plans to start a new dry cleaning business. For that he purchased a space...

1. Carlos plans to start a new dry cleaning business. For that he purchased a space which costed him $100,000. For that he withdrew his savings worth $50,000 and borrowed the remaining $50,000 from a bank. His savings was earning him 3% interest per annum and the banks charges him 6% interest per annum. Based on this what would be Carlos opportunity cost of purchasing the space? a. $3,000 b. $1,500 c. $3,000 d. $4,500 2. Which of the following...

Max, Nat and Roberta formed a partnership to operate a dry-cleaning business. They agreed to share...

Max, Nat and Roberta formed a partnership to operate a dry-cleaning business. They agreed to share initial capital and subsequent income in a 5:3:2 ratio. Each partner’s contributions to the new venture are listed next. Max: $25,000 cash, dry-cleaning equipment worth $180,000 and the ability to keep the equipment in good operating condition. Nat: $15,000 cash and extensive experience in the dry-cleaning business. Roberta: $20,000 cash and a 2-year $75,000 note, payable to the firm, with 3 percent interest on...