Question

The Stevenson family tells you the following regarding their financial situation for 2017:  Their salary is $99,000.  They paid real estate taxes of $6,000 and interest on their mortgage of $8,000.  They earned interest from $1,000 from a savings account and $2,800 from a Cortland City water system upgrade bond. They paid $2,000 to various charities.  Lastly they made $1,000 on the sale of Ford stock they has owned for 5 months. They also made $6,000 on a piece of real estate they has owned for 8 years.   The couple has one child. Exemptions are $3,800 each.

1. What is the family's total taxable income?

A. $73,600

B. $74,200

C. $80,000

D. $76,600

E. $76,200

2. What is the family's total tax liability given the brackets below:

Bracket                                                     Rate

0-$20,000                                                   15%

$20,000.01-$60,000                                    20%

$60,00.01-$120,000                                    25%

over $120,000.01                                         30%

A. $15,400

B. $14,850

C. $14,750

D. $14,400

E. $15,100

Answer 1

Formula sheet

A	B	C	D	E	F	G	H	I	J
2
3		Cortland city bond is tax exempted and hence it should not be considered for tax purposes.
4		Gain on sales of real estate upto $250,000 can be exluded for ownership more than 2 years.
5
6		Income From Salary	99000
7		Interest Earned on Savings Account	1000
8		Income from interest on Cortland City Bond	2000
9		Income from Sale of Ford Stock	1000
10		Income from Sale of Real Estate	6000
11		Total Income	=SUM(D6:D10)
12		Exemption and Deduction
13		Total Exemptions (3*$3800)	=3800*3
14		Real estate taxes	6000
15		Interest paid on mortgage	8000
16		Charity	2000
17		Interest from Cortland Bond	=D8
18		Real estate income tax exemption	=D10
19		Total deduction	=SUM(D13:D18)
20		Taxable income	=D11-D19
21
22		Hence Taxable Income is	=D20
23		Thus the option (A) is correct.
24		2)
25
26		0-$20,000	0.15
27		$20,000.01 - $60,000	0.2
28		$60,000.01-$120,000	0.25
29		Over 120,000.01	0.3
30
31		Taxable Income	=D22
32
33		Tax Lability	=20000*15%+($60,000-$20,000.01)*20%+($73,600-$60,000.01)*25%
34			=20000*D26+(60000-20000.01)*D27+(D31-60000.01)*D28	=20000*D26+(60000-20000.01)*D27+(D31-60000.01)*D28
35
36		Hence Tax liabilty is	=D34
37		Thus the option (D) is correct.
38