3. Suppose the tax rate on the first $20 000 of income is 1096; 2096 on the next

Question

3. Suppose the tax rate on the first $20 000 of income is 1096; 2096 on the next $20,000 earned and 25% on any additional income earned. A person earning S35 000 n laxable income will have an average tax rate of? 12.49% e 14.29% 15.6996 20% 20% un any aclUILional "Kone edmed. Suppose ur her lhal here's an dler naLive rnlnimum lax uf 12% A fal lax). A 4. Suppuse the lax rate un lhe first $20,000 ofincome is 0%; 10% on he nexl $20,000 earned; dn person caing $50,000 in taxable income will have to pay how much in taxes? $4,000 $6,000 $8,000 $10,000 5. Suppose a high-income indiviua subject to a 15% capital gains tax rate, sells 100 shares of Company X for a price of $9 per share (purchased at $1 each) and 500 shares of Company Y for a price of $51 per share (purchased at S50 each). How much in capltal gains tax will he pay? $60 $210

Explanation / Answer

3.

Average tax rate = 100 x Tax paid/Total income

Tax paid = 10% x 20000 + 20% x (35000 - 20000) = $5000

Average tax rate = 100 x 5000/35000 = 14.29%

4.

Tax paid = max ((0% x 20000 + 10% x 20000 + 20% x (50000 - 40000)) ,12% x 50000) = $6000

5.

Capital gains tax = 15% x (100 x (9 - 10) + 500 x (51 - 50)) = $60

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