Question

Lacy is a single taxpayer. In 2018, her taxable income is $44,000. What is her tax liability in each of the following alternative situations? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Her $44,000 of taxable income includes $2,600 of qualified dividends. Tax Liability?

Answer 1

The filing status of Lacy is single. So, the rates of single taxpayer shall apply to Lacy.

Particulars	Amount	Explanation
Taxable Income	$ 44,000	This is the taxable income
Preferentially taxed income	2,600	Qualified dividends are taxable at preferential rate as per IRS
Income taxed at ordinary rates	41,400	44000 – 2600
Tax on income at ordinary rates	5047.70	(41,400-38,700) *22% + 4453.50
Tax on preferential income	390	2600*15%
Tax on taxable income	5437.7	5047.70+390

Hence, tax liability is $ 5437.7

Notes:

1. The ordinary taxable income of Lacy falls in the range of $ 38,700 to $ 82,500 where 22% is levied as tax over the income of 38,700.
2. There are three preferential rates for qualified dividends. When the income falls under 10% and 12% tax bracket, the rate is 0. The rate is 20% when the income falls in the top tax bracket. The rate for balance income bracket is 15%. Lacy pays 22% income tax at ordinary rates and hence is to be levied 15% for qualified dividends.

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