Pad 10:57 AM @ * 97%.- Ok Data Table Taxable Income (2012) Tax Rates 10% 15% 25%
ID: 2547774 • Letter: P
Question
Pad 10:57 AM @ * 97%.- Ok Data Table Taxable Income (2012) Tax Rates 10% 15% 25% 28% 33% 35% Individual Returns $0 to $8,700 $8,701 to $35,350 $35,351 to $85,650 $85,651 to $178,650 $178,651 to $388,350 Over $388,350 Joint Returns $0 to $17,400 $17,401 to $70,700 $70,701 to $142,700 $142,701 to $217,450 $217,451 to $388,350 Over $388,350 Using the 2012 tax rate structure in the picture, calculate Ed Robinson's income tax due on his $113,000 taxable income, assuming that he files as a single taxpayer l After you make the calculation, explain to Ed what his marginal tax rate is and why it is important in making investment decisions. A)Robinson's income tax due is (Round to the nearest cent.) B)Ed Robinson's marginal tax rate is. (Type to the nearest whole percent) C)Why is the marginal tax rate important in making investment decisions? (Select all the choices that apply.) 1.Since the marginal tax rate affects the after-tax return, an investment is said to offer tax-favored income if it defers the payment of tax to a later period 2.Since the marginal tax rate affects the after-tax return, an investment is said to offer tax-favored income if it trades current income for capital gain income 3.Since the marginal tax rate affects the after-tax return, an investment is said to offer tax-favored income if it offers a return that is not taxable 4.Since the marginal tax rate affects the after-tax return, an investment is said to offer tax-favored income if it offers a return that is taxed at a rate less than that on other, similar investmentsExplanation / Answer
Answer A:
Ed Robinson’s taxable Income = $113,000
Amount in the first income bracket = $8,700; tax on the amount in the first income bracket = $8,700 × 10% = $870.00
Amount in the second income bracket = $35,350 – $8,700 = $26,650.00; tax on the amount in the second income bracket = $26,650.00 × 15% = $3,997.50
Amount in the third income bracket = $85,650 – $35,350 = $50,300.00; tax on the amount in the second income bracket = $50,300.00 × 25% = $12,575.00
Amount in the fourth income bracket = $113,000 – $85,650 = $27,350.00; tax on the amount in the second income bracket = $27,350.00× 28% = $7,658.00
Hence, Income Tax due = $870.00 + $3,997.50 + $12,575.00 + $7,658.00 = $25,100.50
Answer B:
Marginal tax rate is the amount of tax paid on an additional dollar of income.
Ed Robinson's marginal tax rate is 28%
Answer 3:
Correct choices are:
3. Since the marginal tax rate affects the after-tax return, an investment is said to offer tax-favored income if it offers a return that is not taxable.
(For example investment in municipal bonds)
4. Since the marginal tax rate affects the after-tax return, an investment is said to offer tax-favored income if it offers a return that is taxed at a rate less than that of other, similar investments.
( for example tax is lower on long term capital gains)
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