Chuck, a single taxpayer, earns $73,500 in taxable income and $29,800 in interest from an investment...

Chuck, a single taxpayer, earns $73,500 in taxable income and $29,800 in interest from an investment in City of Heflin bonds. (Use the 2019 U.S tax rate schedule.)

Required:

How much federal tax will he owe?
What is his average tax rate?
What is his effective tax rate?
What is his current marginal tax rate?

Solutions

Expert Solution

Answer a)

Particluars	Amt
Taxable Income	$ 73,500
Tax rate	22%
Tax Liability	$ 12,029

Tax rate of Single
Tax Brackets	Tax Rate
$0 - $9,700	10%
$9,701 - $39,475	12%
$39,476 - $84,200	22%

So, tax liability of $73,500 is
($9,700* 10%) + ($39,475 - $9,701) 12% + ($73,500 - $39,476) 22%	$ 12,029

Answer b)

Average tax rate	Tax Liability
	Taxable Income
	$ 12,029
	$ 73,500
	16.37%

Answer c)
Effective tax rate	Tax Liability
	(Taxable Income + Interest Income)
	$ 12,029
	($73,500 + $29,800)
	$ 12,029
	$ 103,300
	11.64%

Answer d)
Marginal Tax Rates increases as income increases.
It is already mentioned in the above table in column 1 i.e. Tax Bracket
It is 22%

Answers
a) Federal Tax	$ 12,029
b) Avg Tax Rate	16.37%
c) Effective Tax Rate	11.64%
d) Marginal Tax Rate	22%

ekkarill92 answered 1 year ago

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