Ch. 7 Problem Solutions

Ch. 7 Problem Solutions - Chapter 7 Individual Income Tax...

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Chapter 7 Individual Income Tax Computation and Tax Credits PROBLEM SOLUTIONS 49. [LO 1] Whitney received $75,000 of taxable income in 2012. All of the income was salary from her employer. What is her income tax liability in each of the following alternative situations? a. She files under the single filing status. Whitney has an income tax liability of $14,780. Description Amount Computation (1) Taxable income $75,000 (2) Income tax liability $14,780 (75,000 – 35,350) x 25% + 4,867.50 (see tax rate schedule for Single individuals) b. She files a joint tax return with her spouse. Together their taxable income is $75,000. Whitney has an income tax liability of $10,810. Description Amount Computation (1) Taxable income $75,000 (2) Income tax liability $10,810 (75,000 – 70,700) x 25% + 9,735 (see tax rate schedule for Married Filing Jointly) c. She is married but files a separate tax return. Her taxable income is $75,000. Whitney has an income tax liability of $14,889.50. Description Amount Computation (1) Taxable income $75,000 (2) Income tax liability $14,889.50 (75,000 – 71,350) x 28% + 13,867.50 (see tax rate schedule for Married Filing Separately) d. She files as a head of household. Whitney has an income tax liability of $13,395. Description Amount Computation (1) Taxable income $75,000 (2) Income tax liability $13,395 (75,000 – 47,350) x 25% + 6,482.50 (see tax rate schedule for Head of Household)
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50. [LO 1] In 2012, Lisa and Fred, a married couple, have taxable income of $300,000. If they were to file separate tax returns, Lisa would have reported taxable income of $125,000 and Fred would have reported taxable income of $175,000. What is the couple’s marriage penalty or benefit? The couple would have a marriage penalty of $4,985.50. That is they pay $4,985.50 more in taxes by filing jointly than their combined tax liability if they each had filed as a single taxpayer. 2012 Marriage penalty or (benefit) Two income vs. Single income married couple Married couple Taxable income Tax if file Jointly (1) Tax if file Single (2) Marriage penalty (benefit) (1) – (2) Wife (Lisa) $125,000 $28,460.50 Husband (Fred) 175,000 42,460.50 Combined $300,000 $75,906.50 * $70,921.00 $4,985.50 *$48,665 + [(300,000 – 217,450) × .33] †$17,442.50 + [(125,000 – 85,650) × .28] ‡$17,442.50 + [(175,000 – 85,650) × .28] 51. [LO 1] In 2012, Jasmine and Thomas, a married couple, have taxable income of $150,000. If they were to file separate tax returns, Jasmine would have reported taxable income of $140,000 and Thomas would have reported taxable income of $10,000. What is the couple’s marriage penalty or benefit? The couple would have a marriage benefit of $3,946.50. That is they pay $3,946.50 less in taxes by filing jointly than their combined tax liability if they each would have filed as single taxpayer. 2012 Marriage penalty or (benefit) Two income vs. Single income married couple Married couple Taxable income Tax if file Jointly (1) Tax if file Single (2) Marriage penalty (benefit) (1) – (2) Wife (Jasmine) $140,000 $32,660.50 Husband (Thomas) 10,000 1,065.00 Combined $150,000 $29,779 * $33,725.50 $(3,946.50) *$27,735 + [(150,000 – 142,700) × .28] †$17,442.50 + [(140,000 – 85,650) × .28] ‡$870 + [(10,000 – 8,700) × .15]
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52. [LO 1] Lacy is a single taxpayer. In 2012, her taxable income is $37,000. What is her tax liability in each of the following alternative situations?
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