Federal Tax 1 Spring 2018 In Class Homework Problems Chapter

Federal Tax 1 Spring 2018 In Class Homework Problems Chapter 1 USE THE 2017 TAX RATE SCHEDULES FOR THIS HOMEWORK PROBLEM 1. George & Martha are married and file a joint income tax return. In 2017 the couple had $ 250,000 of total income and S 200,000 in taxable income. aCalculate George & Martha\'s Washington\'s 2017 federal income tax liability (USE THE 2017 tax rate schedule in appendix D in your book) What is George & Martha\'s marginal federal tax rate for 2017? What is the George & Martha\'s average tax rate for 2017? d. What is the George & Martha\'s effective tax rate for 2017? George & Martha are expecting an additional $ 20,000 in income. Which of the above rates is relevant to them concerning the additional income? Why?

Solution

Answer 1-a. Taxable Income = $200,000 Tax Payable = $29,752.50 + 28% X ($200,000 - $153,100) Tax Payable = $29,752.50 + $13,132 Tax Payable = $42,884.50 Answer 1-b. Marginal Federal Tax Rate = 28% George & Martha are currently in 28% Tax Bracket. Her Marginal Tax rate upto $33,350 increase in income is 28% Answer 1-c. Average Tax Rate = $42,884.50 (Tax Payable) / $200,000 (Taxable Income) Average Tax Rate = 21.44% (Approx.) Answer 1-d. Effective Tax Rate = $42,884.50 (Tax Payable) / $250,000 (Total Income) Effective Tax Rate = 17.15% (Approx.) Answer 1-e. Marginal Tax Rate is relevant here for George & Martha. Since, additional income will be taxable @ 28%.