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:

She received $106,000 in salary.

She received $13,500 of dividend income.

She received $7,500 of interest income on Home Depot bonds.

She received $23,000 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $6,300.

She received $11,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $7,600.

Mary receives one exemption ($4,000), and she has allowable itemized deductions of $7,500. These amounts will be deducted from her gross income to determine her taxable income.

           
Tax Table for Single Individuals:          
Taxable Income   Amount Paid on Base   Percentage on Excess over Base  
$0.00   $0.00   10.00%  
$9,225.00   $922.50   15.00%  
$37,450.00   $5,156.25   25.00%  
$90,750.00   $18,481.25   28.00%  
$189,750.00   $46,075.25   33.00%  
$411,500.00   $119,401.25   35.00%  
$413,200.00   $119,996.25   39.60%  
           

What is Mary's federal tax liability? Round your answer to the nearest cent. Do not round intermediate calculations.

$

What is her marginal tax rate? Round your answer to 1 decimal place.

%

What is her average tax rate? Round your answer to 2 decimal places.

%

Answer 1

Mary's federal tax liability is $31,039.25

Salary $106,000

Dividend Income $13,500

Interest income on Home Depot Bonds $7,500

Capital Gain from sale of Disney stock $16,700 (23000-6300)

Gain from sale of Google stock $3,400 (11000-7600)

Mary's total Income $147,100

Less: Itemized deduction $7,500

Taxable income $139,600

Less: Exemption $4,000

Net Taxable Income $135,600

Tax rate for Mary is 28%

Amount on base $18,481.25

Amount on excess over base (135600-90750) x 28% $12,558

Federal tax liability $31,039.25  

Marginal Tax rate

There are 7 marginal tax rate bracket for individual. Mary fall in the following brackets:

0 - $9225 x 10% = $922.50

9225 - 37,450 x 15% = $4233.75

37450 - 90750 x 25%=$13,325

90750 - 135600 x 28%=$12558

Total tax payable =$31,039.25

Average tax rate = Total tax liability / Total Taxable income

= $31,039.25/$135,600

= 22.89%