Question

Jorge and Anita, married taxpayers, earn $148,500 in taxable income and $62,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule). (Do not round intermediate calculations. Round your answers to 2 decimal places.)

a.

If Jorge and Anita earn an additional $111,000 of taxable income, what is their marginal tax rate on this income?

      

b.

What is their marginal rate if, instead, they reported an additional $111,000 in deductions?

Answer 1

Case a:
Particulars	Amount ($)	Amount ($)
Taxable income of Jorge and Anita	148,500.00
Interest from investment in City Heflin Bonds is exempt from tax	-
Additional taxable income of the couple	111,000.00
Taxable income		259,500.00
Married couple filing jointly income up to $18650 @10%	1,865.00
From $18651 to $75900 @15%	8,587.50
From $75901 to $153100 @25%	19,300.00
From $153101 to $233350 @28%	22,469.72
From $233351 to $259500 @33%	8,629.50
Tax liability		60,851.72
Tax liability rounded off	60,582.00
Thus, marginal tax rate (60852 x 100/259500)	23.45%

Cash b
Particulars	Amount ($)	Amount ($)
Taxable income of Jorge and Anita	148,500.00
Interest from investment in City Heflin Bonds is exempt from tax	-
Taxable income	148,500.00
Less: Additional deduction	111,000.00
Taxable income		37,500.00
Married couple filing jointly income up to $18650 @10%	1,865.00
From $18651 to $37500 @15%	2,827.50
Tax liability		4,692.50
Tax liability rounded off	4,693.00
Thus, marginal tax rate (4693 x 100/37500)	12.51%