2. The Jacksonville Jaguars earn $175,000 in ordinary income in 2012. They also

Question

2. The Jacksonville Jaguars earn $175,000 in ordinary income in 2012. They also receive $150,000 in interest income and make a $50,000 payment out. Assuming a flat tax rate of 33%, calculate their taxes paid and after-tax profits.

3. Repeat problem #4, but use the following tax brackets.

Income                                    Bracket Tax Rate

$0 to $35,000                            5%

$35,001 to $85,000                    10%

$85,001 to $110,000                   15%

$110,001 to $155,000                  25%

>$155,001                                  42%

4. What is the marginal and average tax rate for the Jaguars in this case? Which tax structure (flat or bracketed) would they prefer, based on your calculations?

Explanation / Answer

Answer:2

Answer:3 Taxable income=$275000

Tax on $35000*5%=1750

Tax on next $49999*10%=$4999.9

Tax on next 24999*15%=$3749.85

Tax on next $44999*25%=$11249.75

Tax on next 119999*42%=$50399.58

Total tax=72149.08

Marginal tax rate=(72149.08/275000)*100=26.24%

So this tax rate is preferred.

Particulars Amount ($) Ordinary income 175000 Add: Interest income 150000 Less: Payment 50000 Income before tax 275000 Less: Taxes@33% 90750 After tax profit 184250

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