Question

Excel Online Structured Activity: Personal taxes 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 $124,000 in salary. • She received $19,000 of dividend income. • She received $4,900 of interest income on Home Depot bonds. • She received $21,000 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $6,300. • She received $9,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $5,300. • 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 required analysis to answer the questions below. x ppen 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. %

Answer 1

a.Computation of federal income tax for 2014:

Marys salary

124,000

Tax on dividend and capital gains at 15%

Dividend income	19,000	at 15%	2850
Interest income	4,900
Income from sale disney stock(21000-6300)	14,700	at 15%	2205
Sale of google stock(9000-5300)	3,700
Adjusted gross income	166,300
Less:
Itemized deductions	(7500)
Personal Exemption	(4000)

Taxable income	154,800
Tax
Federal tax liability on ordinary income(154800-19000-14700)	121,100
(121100-90750)*28%+5156	13,654
Add: Tax on dividend and capital gains	5,055
Total federal tax liability	18,709
Average tax rate	Tax/Taxable icome	$ 18,709/154,800	8%
Marginal tax rate	28%

Mary is currently in the 28% tax rate bracket.Her marginal tax rate on increases in income will be taxed at 28%