Question

1. George & Martha are married and file a joint income tax return. In 2017 the couple had $ 250,000 of total income and $ 200,000 in taxable income. a. Calculate George & Martha’s Washington’s 2017 federal income tax liability (USE THE 2017 tax rate schedule in appendix D in your book). b. What is George & Martha’s marginal federal tax rate for 2017? c. What is the George & Martha’s average tax rate for 2017? d. What is the George & Martha’s effective tax rate for 2017? e. George & Martha are expecting an additional $ 20,000 in income. Which of the above rates is relevant to them concerning the additional income? Why? 2. John is a single taxpayer. He visits your office for some tax advice in early December 2017. John forecasted his 2017 taxable income to be $ 37,000. His 2018 taxable income is forecasted at $ 45,000. John is felling fortunate and wants to donate $ 6,000 to a charity. The donation will lower his taxable income by $ 6,000 (we will learn about charitable deductions later this semester). John’s Aunt Betsy told him to make the donation before 12/31/17 so he can save taxes on his 2017 tax return. a. How much 2017 federal income tax will John save by making a 2017 donation? b. Did Aunt Betsy give John good advice? What would your advice be to John about his planned donation? 3. Jack & Jill, a married couple filing jointly, have a projected 2017 taxable income of $300,000. Their neighbor Bob & Betty, also a married couple filing jointly, have a projected 2017 taxable income of $ 66,000. James, a friend to both couples works for a brokerage company specializing in bonds. He asks both couples to consider investing $ 100,000 in either of the following bonds: • A municipal bond that pays tax free interest income. 10 year bond paying 6% interest per year, or • An AT&T bond that pays taxable interest income. 10 year bond paying 8% interest per year. Assume each bond has identical risk and other features. A. Which bond would you recommend to Jack & Jill? Why? B. Which bond would you recommend to Bob & Betty? Why.

Answer 1