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Homework Set 1 Solution

# Homework Set 1 Solution - Tax 4001 2011/2012 Homework Set#1...

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Tax 4001 2011/2012 Homework Set #1 Solution PAGE 1 #1A Gross Income subject to tax \$190,000 FOR AGI Deductions (6,000) AGI 184,000 Less: Itemized Deductions (23,000) Less: Personal Exemption (3,700) Taxable Income \$157,300 #1B Tax Liability: 17025 + .28(157350-83600) = 37,675 Less: Credits (2,000) Total Tax Liability 35,675 Less: Estimated Payments (23,000) Total Tax Due \$12,675 #1C Gross Income subject to tax 190,000 Less: Expenses (29,000) Taxable Income 161,000 Tax Liability: 50000 * .15 + 25000 * .25 + 25000 * .34 + 61000 * .39 = 46,040 Less: Credits (2,000) Less: Estimated Payments (23,000) Total Tax Due \$21,040 #2A Taxable Income 120,000 Tax Liability: 50000 * .15 + 25000 * .25 + 25000 * .34 + 20000 * .39 = \$30,050 #2B Marginal Rate 39% Tax on Next Dollar Earned Average Rate (30,050/120,000) 25.0% Tax//Taxable Income Effective Rate (30,050/130,000) 23.1% Tax/Accounting Income #2C Implicit Rate: =(7.5 - 5.5)/ 7.5 26.67% #2D Yes because the Implicit Rate is < Marginal Rate

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Tax 4001 2011/2012 Homework Set #1 Solution PAGE 2 #3 S Corp Income: 40% X 150,000 60,000 C Corp Income: Dividends Received 35,000 Total Income \$95,000 #4 #5 The deduction for state and local income taxes can be justified on the grounds that it mitigates the double tax imposed on the same income. The deduction for sales taxes paid cannot be similarly justified. Here, the rationale was to place those states that rely on a general sales tax on a parity
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Homework Set 1 Solution - Tax 4001 2011/2012 Homework Set#1...

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