Chuck, a single taxpayer, earns $84,500 in taxable income and $23,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule.)
Required:
If Chuck earns an additional $56,000 of taxable income, what is his marginal tax rate on this income?
What is his marginal rate if, instead, he had $56,000 of additional deductions?
(For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places.)
Can you please show what your work on this is so far, or let us know where you're getting stuck?
for the first question:
Taxable income is 163500
which is on the 32% range
for the second question:
Taxable income is 51,500
which is on the 22% range
I need to know if correct because this is my second time answering the question
To determine Chuck's marginal tax rate on an additional $56,000 of taxable income, we need to use the U.S. tax rate schedule. The tax rate schedule provides the different tax rates for different levels of taxable income.
First, let's calculate Chuck's total taxable income before the additional $56,000:
Total Taxable Income = $84,500 + $23,000 (interest income) = $107,500
Now, let's determine the tax on the current taxable income using the tax rate schedule:
Tax on Current Income = (Taxable Income - Lower Limit) * Rate + Base Tax
The tax rate schedule for a single taxpayer in 2021 is as follows:
10% on income up to $9,950
12% on income between $9,951 and $40,525
22% on income between $40,526 and $86,375
24% on income between $86,376 and $164,925
32% on income between $164,926 and $209,425
35% on income between $209,426 and $523,600
37% on income over $523,600
Let's calculate the tax on Chuck's current taxable income of $107,500:
Tax on Current Income = ($107,500 - $ 86,376) * 24% + $14,233 (base tax) = $18,973
Now, let's calculate the tax on the new taxable income including the additional $56,000:
New Taxable Income = $107,500 + $56,000 = $163,500
Tax on New Income = ($163,500 - $ 86,376) * 24% + $14,233 (base tax) = $41,433
To find the marginal tax rate on the additional $56,000 of taxable income, we can subtract the tax on the current income from the tax on the new income:
Marginal Tax Rate = (Tax on New Income - Tax on Current Income) / Additional Income
Marginal Tax Rate = ($41,433 - $18,973) / $56,000 = 39.73%
Therefore, Chuck's marginal tax rate on the additional $56,000 of taxable income is 39.73%.
To determine Chuck's marginal tax rate if he had $56,000 of additional deductions, we need to calculate the tax savings from these deductions. Since deductions reduce taxable income, the tax savings will be equal to the deductions multiplied by Chuck's marginal tax rate.
Tax Savings = Additional Deductions * Marginal Tax Rate
Tax Savings = $56,000 * 24% = $13,440
Therefore, Chuck's marginal tax rate if he had $56,000 of additional deductions is 24%.