Question

Please answer the questions listed below. They were the ones I got wrong.

Q5: a miscalculation in blank 3 follows through part d. Part e blank 1 an part f blank 1 are also incorrect.

Question 5

For tax purposes, “gross income” is all the money a person receives in a given year from any source. But income taxes are levied on “taxable income” rather than gross income. The difference between the two is the result of many exemptions and deductions. To see how they work, suppose you made $50,000 last year in wages, $10,000 from investments, and were given $5000 as a gift by your grandmother. Also assume that you are a single parent with one small child living with you.

Instructions: Enter values as whole numbers.

1. What is your gross income? $ __________65000________
   
   
   
   
   

2. Gifts of up to $13,000 per year from any person are not counted as taxable income. Also, the “personal exemption” allows you to reduce your taxable income by $3700 for each member of your household.
   
   Given these exemptions, what is your taxable income? $ ________52700_____________
   
   
   
   
   

3. Next, assume you paid $700 in interest on your student loans last year, put $2000 into a health savings account (HSA), and deposited $4000 into an individual retirement account (IRA). These expenditures are all tax exempt, meaning that any money spent on them reduces taxable income dollar-for-dollar.
   
   Knowing that fact, what is your taxable income now? $_____46000______________
   
   
   
   
   

4. Next, you can either take the so-called standard deduction or apply for itemized deductions (which involve a lot of tedious paperwork). You opt for the standard deduction that allows you as head of your household to exempt another $8500 from your taxable income.
   
   Taking that into account, what is your taxable income? $ ________37500___________
   
   
   

5. Apply the tax rates shown in the table below to your taxable income.
   
   Table Caption: Federal Personal Income Tax Rates, 2011*

(1) Total Taxable Income	(2) Marginal Tax Rate, %	(3) Total Tax on Highest Income in Bracket	(4) Average Tax Rate on Highest Income in Bracket, %
$17,000	10	$1700	10
$17,001 to $69,000	15	9500	14
$69,001 to $139,500	25	27,125	19
$139,501 to $212,300	28	47,509	22
$212,301 to 379,150	33	102,570	27
Over $379,150	35	---	---

6. 1. How much federal tax will you owe? $ ____4787.50________
      
      
      
      

   2. What is the marginal tax rate that applies to your last dollar of taxable income? _____15_____ %
      
      

7. As the parent of a dependent child, you qualify for the government’s $1000 per-child “tax credit.” Like all tax credits, this $1000 credit “pays” for $1000 of whatever amount of tax you owe.
   

   1. Given this credit, how much money will you actually have to pay in taxes? $ _____3787.50__________
      
      
      
      
      Instructions: Enter your answer to one decimal place.
      

   2. Using that actual amount, what is your average tax rate relative to your taxable income. _____10.1_________ %
      
      
      
      

   3. What about your average tax rate relative to your gross income? ______5.8_______ %

Answer 1

GROSS INCOME	.=	WAGES + INV + GIFTS
	.=	65000
Tax exemptions	.=	Since gifts upto 13000 is tax exempted hence here, the 5000 gift is also tax exempted	+	Personal Exemption = 3700*2 since there are two members in the houselhold
	.=	12400
Therefore , Taxable Income	.=	65000 - 12400
		52600
Interest 0n Student Loans	.=	700
HAS	.=	2000
IRA	.=	4000
Therefore, Taxable Income now	.=	52600-(Interest+HAS+IRA)
		45900
Now Standard Deduction TAx exemption	.=	8500
Taxable Income	.=	Previous step taxed income - std deduc	45900-8500
		37400
Applicable Tax	.=	1700 at 10% for the first 17000$	+	15% on the Rest 37400-17000 = 20400
	.=	1700	+	3060
	.=	4760
Marinal Tax rate on last dollar of income	.=	15%
Given the 1000$ credit actual amount paid in taxes	.=	Applicable Tax - 1000	4760-1000
	.=	3760