Question

Ms. Busch has gathered these data about her finances:

Salary - 140,000

Taxable Interest Received - 2,500

Municipal Bond Interest Received - 15,000

Total Itemized Deductions - 8,000

The personal exemption is $3,700. The standard deduction for a single fiiler is $5,800. Use the rate schedule in 9-2 to compute the following:

- her tax

- her average effective tax rate

- Her average tax rate

- Her marginal tax rate

- Her accountant discovers a previously omitted personal deduction of $800. By how much does her federal tax liability fall with that addition?

- Amazingly enough, the accountant now discovers a $250 credit omitted from previous calculations (but after discovering the $800 in part e.) By how much does her federal tax liability fall because of this credit?

If taxable income is	Then tax is:
$0-9,225	10% of the amount over $0
$9,225 - $37,450	$922.50 + 15% of the amount over 9,225
$37,450 - $90,750	$5,156.25 + 25% of the amount over $37,450
$90,750 - $189,300	$18,481.25 + 28% of the amount over $90,750
$189,300 - $411,500	$46,075 + 33% of the amount over $189,300
$411,500 - $413,200	$119,401 + 35% of the amount over $411,500
$413,200 or more	!119,996.25 + 39.6% of the amount over $413,200

Answer 1

	Particular	Amount
	Salary	$140,000.00
	Taxable interest received	$    2,500.00
	AGI	$142,500.00
	Less: Itemized deductions	$    8,000.00
	Less: Personal Exemption	$    3,700.00
	Total Taxable Income	$130,800.00
a	Tax (18481.25+(130800-90750)*28%)	$ 29,695.25
b	Average Effective Rate (29695.25/(142500+15000))	18.85%
c	Average Tax Rate (29695.25/142500)	20.84%
d	Marginal Tax Rate (29695.25/142500)	28%
e	Federal Tax Liability Fall (800*28%)	$      224.00
f	Federal Tax Liability Fall	$      250.00