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Required information [The following information applies to the questions displayed below.] Lacy is a single taxpayer....

Required information [The following information applies to the questions displayed below.] Lacy is a single taxpayer. In 2020, her taxable income is $42,000. What is her tax liability in each of the following alternative situations? Use Tax Rate Schedule, Dividends and Capital Gains Tax Rates for reference. (Do not round intermediate calculations.)

a. All of her income is salary from her employer.

b. Her $42,000 of taxable income includes $1,000 of qualified dividends.

c. Her $42,000 of taxable income includes $5,000 of qualified dividends. (Round your answers to 2 decimal place

Solutions

Expert Solution

Ans:1. Income= Salary from Employer

Status= Single

Tax liability= $4,617.50+22% of {42,000-40,125}

=> $4,617.50+ 22% of 1,875

=> $4,617.50+ 412.50

=> $5,030

2. Her $42,000 of taxable income includes $1,000 of qualified dividends:

Taxable income- 42,000

Qualified dividends= 1,000

Net income which is taxed at ordinary rates= 41,000

Tax Liability= $4,617.50+ 22% of {41,000-40,125}

=> $4,617.50+ 22% of 875

=. $4,617.50+ 192.50

=> $4,810

Tax on Qualified Dividends i.e. $1,000:

Since taxable Income falls between the slab of $40,001 to $441,450 and rate is 15% flat

therefore tax on Qualified Dividends= 1,000*15%: $150

Total Tax= $4,810+150

=> $4,960

3. Her $42,000 of taxable income includes $5,000 of qualified dividends

Taxable income= $42,000

Qualified Dividends= $5,000

Net income which is taxed at ordinary rates= 37,000

Tax liability= $987.50+ 12% of {37,000-9,875}

=> $987.50 + 12% of 27,125

=> $987.50+ 3,255

=> $4,242.50

Tax on Qualified Dividends= {5,000*15%} { As taxable incomes lies between the slab of 40,001 to 441,450}

=> 5,000*15%

=> 750

Tax liability= $4,242.50+750

=> $4,992.50

=> $4,542.50

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