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 $139,000 in salary. • She received $15,000 of dividend income. • She received $5,500 of interest income on Home Depot bonds. • She received $22,000 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $5,200. • She received $12,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $7,000. • 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. Assume that her tax rates are based on Table 3.5. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the require analysis to answer the questions below. Open spreadsheet a. What is Mary's federal tax liability? Round your answer to the nearest cent. Do not round intermediate calculations. b. What is her marginal tax rate? Round your answer to 1 decimal place. c. What is her average tax rate? Round your answer to 2 decimal places. jo

use the table to assume the tax rates

Answer 1

Ans- Computation of Taxable Income :-

Salary	$139,000
Interest Income	$5,500
Gain from sale of Google stock ($12,000-$7,000)	$5,000
Gross Income	$128,500
Less : Deductions
Exemption	$4,000
Itemized deduction	$7,500
Net Taxable Income	$117,000

a-Computation of Mary's federal tax liability:-

Tax on $117,000	$18,481.25 +($117,000-$90,750) * 28%
	$18,481.25+ $13,034
	$25,831.25
Tax on dividend and capital gains $15,000+$16,800 ($22,000- $5,200)=$31,800	$31,800*15%
	$4770
Total federal tax liability	$30,601.25 ($25,831.25+$4,770)

Mary also needs to pay taxes on dividend and capital gains at 15% (Because $31,800 falls in that tax bracket)

b- Marginal tax rate- 28%

c-Average tax rate- $30,601.25/ ($117,000+$31,800)

=$30,601.25/ $148,800

=20.57%