Question

The Gabriel family tells you the following regarding their current tax situation: Their salary is $75,000. They paid real estate taxes of $4,000 and interest on their mortgage of $3,000. They earned $1,500 from a Cortland Water bond. They made $2,000 on the sale of a property they owned for 5 months. They also made $5,000 on the sale of AES stock they purchased 4 years ago. The couple has three children. Exemptions are $4,000/person.

a. WHAT IS THEIR TAXABLE INCOME? SHOW YOUR WORK STEP BY STEP.

b. Use the tax table below to determine their total tax liability. SHOW YOUR WORK.

Taxable Income		Tax Rate
Up to $25,000		10%
$25,000 -$40,000		15%
$40,000 - $55,000		20%
$55,000-$70,000		25%
over $70,000		35%

c. What is the family's marginal rate?

d. What is the family's average rate? Show your calculation.

Answer 1

a)
Salary	75000
Bond	1500
Short Term Capital Gains	2000
Less: Standard Deductions	24000
Taxable Income	54500
Capital Gains	4000
Total Taxable Income	58500
b)
Calculation Of Tax Liability
Tax Liabilty on Capital Gains	600
Tax Liabilty on Other Income
Upto $25,000	2500
From $25,000 to $40,000	2250
From $40,000 to $55,000	2900
Total Tax Liability	8250
c)
Family's Marginal Tax rate is 20%
d)
Average Tax Rate	= 8260/58500
	14%