Mary Jarvis is a single individual who is working on filing her tax return for t
ID: 2638057 • Letter: M
Question
Mary Jarvis is a single individual who is working on filing her tax return for the previous year. She has assembled the following relevant information.
o She received $82,000 in salary.
o She received $12,000 of dividend income.
o She received $5,000 of interest income on Home Depot bonds.
o She received $22,000 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $9,000.
o She received $10,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $7,500.
o Mary receives one exemption ($3,950), and she has allowable itemized deductions of $7,500.
These amounts will be deducted from her gross income to determine her taxable income.
Assume that her tax rates are based on the tax tables presented in the chapter.
(a) What is Mary
Explanation / Answer
(a) Total income of Mary= 82,000+12,000+5000+11000 (22000-9000)+2500 (10000-7500)= 112500
Itemized Deductions= 7500
Net Income=112500-7500= 105000
Exemption= 3950
Net Taxable Income= 101050
Lets assume the tax rate is 10% (since tax rates are not available)
Tax Liability= 10105 (101050*10%)
(b) Marginal Tax rate can be identified from the tax table, it is the percentage at which the income is being taxed in a particular tax bracket.
(c) Avg. tax Rate: Lets assume, the tax rate is 5% for first $5000 of the income and 10% for the next $10000 of the income.
Avg tax rate is obtained by dividing '0.05*5000+0.1*10000= 250+ 1000= 1250' by 101050= 1250/101050= 1.23 %
Assumptions of the tax table are taken as actual tax table wasn't present.
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