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ACCOUNTING

# ACCOUNTING - Effective tax rate = = = 17.57 Chuck is...

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imposed on the taxpayer. Indeed, for certain taxpayers, record-keeping costs, accountant fees, attorney fees, etc. can be quite substantial. Advocates of alternative tax systems often challenge the income tax on this criterion. Problems (34) [LO3] Chuck, a single taxpayer, earns \$75,000 in taxable income and \$10,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule, how much federal tax will he owe? What is his average tax rate? What is his effective tax rate? What is his current marginal tax rate? Chuck will owe \$14,931.25 in federal income tax this year computed as follows: \$14,931.25 = \$4,681.25 + 25%(\$75,000 - \$34,000)). Chuck’s average tax rate is 19.91%. Average Tax Rate = = = 19.91% Chuck’s effective tax rate is 17.57 percent.
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Unformatted text preview: Effective tax rate = = = 17.57% Chuck is currently in the 25 percent tax rate bracket. His marginal tax rate on increases in income up to \$7,400 and deductions from income up to \$41,000 is 25 percent. (35) [LO3] Using the facts in the previous problem, if Chuck earns an additional \$40,000 of taxable income, what is his marginal tax rate on this income? What is his marginal rate if, instead, he had \$40,000 of additional deductions? If Chuck earns an additional \$40,000 of taxable income, his marginal tax rate on the income is 27.45 percent. Marginal Tax Rate = = = 27.45% If Chuck instead had \$40,000 of additional tax deductions, his marginal tax rate on the deductions would be 25.00 percent....
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