Question

The L:inton family tells you the following regarding their financial situation for 2015: Their gross salary is $82,000. They also earned $2,000 in interest from a savings account. They paid real estate taxes of $5,000 and interest on their mortgage of $5,000. They earned $1,500 in interest from a General Motors bond. They made $6,000 on the sale of 5 acres that they had owned for 2 years. They sold AES stock they owned for 10 months for a gain of $2,000. The couple has two children.  Exemptions are $3,800/person.

a. WHAT IS THEIR TAXABLE INCOME? SHOW YOUR WORK STEP BY STEP.

b.Use the table below to determine their tax liability: SHOW YOUR WORK.

Taxable Income		Tax Rate
Up to $25,000		10%
$25,000 -$40,000		15%
$40,000 - $55,000		20%
$55,000-$70,000		25%
over $70,000		35%

c. What is the family's marginal tax rate?

d. What is the family's average rate? Show your calculation.

Answer 1

a. Computation of Taxable Income
Particular		Amount
Gross Salary		82000
Interest income from bonds		1500
Income from property sale		6000
Income from shares		2000
Gross Income		91500
Less : Dependent Exemption		3800
Adjusted Gross Income		87700
Itimized deduction
Real Estate Tax	5000
Interest on mortgage	5000
Total Itimized deduction	10000
Standard deduction	12600
Itimized deduction will be allowed		12600
Taxable income		75100

b. Computation of Tax Liability
Taxable income		75100
Tax up to 25000 @ 10%	2500
Tax up to 25000 to 40000 @ 15%	2250
Tax up to 40000 to 55000 @ 20%	3000
Tax up to 55000 to 70000 @ 25%	3750
Tax more than 70000@ 35%	1785	13285
Total Tax liability will be $ 17345

c. Marginal Tax rate will be 35%

d. Computation of Average tax rate
Total tax liability	13285
Gross income	91500
Average tax rate	14.52%