Problem 1-39 (LO 1-3) Jorge and Anita, married taxpayers, earn $150,000 in taxab

Question

Problem 1-39 (LO 1-3) Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule). Required: a. If Jorge and Anita earn an additional $100,000 of taxable income, what is their marginal tax rate on this income? b. What is their marginal rate if, insteed, they report an additional $100,000 in deductions? ook sk (For all requirements, round your answers to 2 decimal places.) int Marginal tax rate Marginal tax rate rences

Explanation / Answer

Taxable Income = $150,000 Tax Payable = $8,907 + 22% X ($150,000 - 77,400) Tax Payable = $8,907 + $15,972 Tax Payable = $24,879 Answer a. Additional Income = $100,000 Taxable Income = $150,000 + $100,000 = $250,000 Tax Payable = $28,179 + 24% X ($250,000 - $165,000) Tax Payable = $28,179 + $20,400 Tax Payable = $48,579 Marginal Tax Rate = ($48,579 - $24,879) / ($250,000 - $150,000) Marginal Tax Rate = 23.70% (Approx.) Answer b. Additional Deductions = $100,000 Taxable Income = $150,000 - $100,000 = $50,000 Tax Payable = $1,905 + 12% X ($50,000 - $19,050) Tax Payable = $1,905 + $3,714 Tax Payable = $5,619 Marginal Tax Rate = ($5,619 - $24,879) / ($50,000 - $150,000) Marginal Tax Rate = 19.26% (Approx.)

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