Question

1. Mark has a choice of investments; Mark can invest in City of Nowhere Bonds which pay 6% interest or in Big Bad Corporation bonds that pay 9% interest. Mark has a marginal tax rate of 40%. If both bonds carry the same amount of risk; which bond should he invest in?

2.By the end of year 1, Harold and Jamie Allred had been married for 30 years and have filed a joint return every year of their marriage. Their three sons, Jacob, Larry, and Andi, are ages 13, 16, and 23 respectively and all live at home and are fully supported by their parents. Andi is employed full time, earning $17,000 in year 1. Who can the Allreds claim as dependents? Explain your answer for full credit

3.

Joe paid his estimated tax on April 15 but got an extension to file his taxes late, as a result he did not file his 2015 return until July 1, 2016. When does the statute of limitation expire answer must be in this format xx/xx/xxxx or None if there is no limit)?

When does the statute of limitation expire if Billy and Barbara filed their 2015 tax returns late on December 1, 2016 (answer must be in this format xx/xx/xxxx or None if there is no limit)?

Susie earns $150,000 in taxable income and files as single for year 2018, if Susie's earns an additional $50,000 what is her marginal tax rate on the additional income ? (rounded to one decimal for example 89.9)?

Use this information for the next 3 questions.

Leonardo earns taxable income of $80,000. He also has interest income of $15,000 in city of Tulsa bonds. His wife, Theresa, earns taxable income of $50,000. They have no other dependents or itemized deductions. Calculate the following items and label your answers:

1. Leonardo and his wife file married filing jointly in 2018, what would be their tax liability (rounded to the nearest whole number, for example 1,250.50 would be rounded to 1,251)?

2. What is Leonardo and Theresa's average tax rate for year 2018 (rounded to one decimal for example 87.9)?

3. How much tax would Leonardo and Theresa pay if they filed as married filing separately for year 2018 (answer to the nearest $ for example 899.25 would be 899)?

Answer 1

Question 1:

City of Nowhere Bonds are Muncipal bonds which are tax exempt whereas as Big Bad Corporation bonds are corporate bonds which are not tax exempt.

So, we have to calculate the after tax yield corporate bond which is 9%*(1-0.4) = 5.4% whereas the muncipal bonds yields 6% after tax as there is no tax

So, we should invest in n City of Nowhere Bonds which pay 6% interest

Question 2: Since andi is earning $17000 per year. He cannot be considered as a dependent becuase he is working and earning a salary. Therefore  Harold and Jamie Allred can claim that only Larry and Jacob are dependents

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