Question

Ms. Busch has gathered these data about her finances:

Salary    140,000

Taxable interest received 2,500

Municipal bond interest received 15,000

Total itemized deductions 8,000

The personal exemption is $3,700. The standard deduction for a single filer is $5,800.

a. Her tax

b. Her average effective tax rate

c. Her average tax rate

d. Her marginal tax rate

e. Her accountant discovers a previously omitted personal deduction of $800. By how much does her federal tax liability fall with that addition?

f. Amazingly enough, the accountant now discovers a $250 credit omitted from previous calculations (but after discovering the $800 in part e.). By how much does her federal tax liability fall because of this credit?

Answer 1

Answer:

Ms. Busch has gathered these data about her finances:

Salary    140,000

Taxable interest received 2,500

Municipal bond interest received 15,000

Total itemized deductions 8,000

The personal exemption is $3,700. The standard deduction for a single filer is $5,800.

a. Her tax

Particular	Calculation	Amount
Salary	given	140000
Taxable interest received		2,500
Municipal bond interest received		15,000
Total Taxable Income		157500
Less: Exemption
Personal Exemption		(3,700)
Less: Deduction
Total itemized deductions		(8,000)
standard deduction for a single filer		(5,800)
Net Taxable Income		140000
Tax
Total Tax ( Slabs taken as per Federal Tax 2018-2019)	= 14089.50 + 24% on (140000-82500) = 27889.50	27889.50

b. Her average effective tax rate

=Total Tax / Total Taxable Income x 100

=27889.50/157500 x 100

= 17.7076%

c. Her average tax rate

=Total Tax / Net Taxable Income x 100

= 27889.50/ 140000 x 100

= 19.9211%

d. Her marginal tax rate

Marginal tax rate is 24% as she comes under 24 % tax bracket at highest. As she is single, hence no joint income is calculated and tax thereon. Hence, When she earns more than such income she may required to pay higher tax as per tax rates and slabs applied at that time.

e. Her accountant discovers a previously omitted personal deduction of $800. By how much does her federal tax liability fall with that addition?

As we do not have previous information , Hence it is assumed that such person comes under 24 % bracket last year.

Hence, her federal tax liability fall with that addition due to previously omitted personal deduction of $800 be = $ 800 x 24% = $ 192

f. Amazingly enough, the accountant now discovers a $250 credit omitted from previous calculations (but after discovering the $800 in part e.). By how much does her federal tax liability fall because of this credit

In given case The Tax liability will be reduced by such Tax credit and remaining will be adjusted in previous periods tax liability

her federal tax liability fall because of this credit = 27889.50 - 250 + 192 = $ 27831.50