Question

1.) Chuck, a single taxpayer, earns $85,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. If Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income?

1B.) Chuck, a single taxpayer, earns $85,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. If Chuck claims an additional $40,000 of deductions, what is his marginal tax rate on this income?

Answer 1

1. Chuck a single taxpayer's total income for the year = $85,000 + $10,000 + $40,000= $135,000

As per US federal tax brackets Chuck's income falls in the 24% tax bracket with a progressive tax system.

But if we calculate his taxes it comes out to be $25,380 as per various tax brackets, hence his effective tax rate becomes 18.8%.

2. Chuck a single taxpayer's total income for the year = $85,000 + $10,000 =$95,000. Without deductions he falls in the 24% tax bracket. But after claiming a $40,000 deduction his Total Income becomes $55,000 which falls in the 22% tax bracket.

As per US federal tax brackets Chuck's income falls in the 22% tax bracket with a progressive tax system.