Chapter 1 Selected Homework Solutions
43.
Susan is single with a gross income of $110,000 and a taxable income of $88,000.
In
calculating taxable income, she properly excluded $10,000 of tax-exempt interest income.
Using the tax rate schedules in the chapter, calculate Susan's
a.
Total tax
c.
Average tax rate
b.
Marginal tax rate.
d.
Effective tax rate
a. Tax computation: single taxpayer rate schedule for 2011:
Taxable Income
$ 88,000
Tax on
83,600
$17,025.00
Excess
$
4,400
Taxed at Marginal Rate
x
28
%
1,232.00
Total Tax
$18,257.00
b. The marginal tax rate is the rate of tax that would be paid on an additional dollar of
income.
At a taxable income of $88,000, a single taxpayer would be in the 28%
marginal tax rate bracket (from the calculation above).
c. The average tax rate is the rate of tax paid on the total tax base; the total tax
divided by taxable income.
In this case, the total tax is $18,257.00 on a taxable
income of $88,000, which gives an average tax rate of 20.75%:
20.75%
=
($18,257.00 tax
$88,000 taxable income)
d. The effective tax rate is the rate of tax paid on all income (taxable and nontaxable).
The total tax paid is divided by the taxpayer's economic income (taxable income
+
nontaxable income).
In this case, Susan has $10,000 of tax-exempt income that
increases her economic income to $98,000 ($88,000 taxable
+
$10,000 nontaxable).
This results in an effective tax rate of 18.63%:
18.63%
=
($18,257.00 tax
$98,000 economic income)
44.
A taxpayer has $95,000 of taxable income for the current year.
Determine the total tax,
the marginal tax rate, and the average tax rate if the taxpayer is a
a.
Single individual
b.
Married couple
c.
Corporation
a.
Total tax on $95,000 for a single individual: 2011 single rate schedule
Taxable Income
$ 95,000
Tax on
83,600
$ 17,025.00
Excess
$ 11,400
Taxed at Marginal tax rate
x
28
%
3,192.00
Total Tax
$ 20,217.00