For tax purposes, \"taxable income\" rather than gross income. The difference be
ID: 1151409 • Letter: F
Question
For tax purposes, "taxable income" rather than gross income. The difference between the two is the result of many exemptions and deductors To see gross income" is all the money a person receives in a given year from any source. But income taxes are levied on how they work, suppose you made $70,000 last year in wages, $10,000 from investments, and were given $ grandmother. Also assume that you are a single parent with one small child living with you. Instructions: Enter your answers as whole numbers. a. What is your gross income? Answer is complete and correct. 85,000 person are not counted as taxable income. Also, the "personal exemption" allows you to b. Gifts of up to $12,000 per year from any educe your taxable income by $3,650 for each member of your household. Given these exemptions, what is your taxable Answer is complete and correct. 72,700 c. Next, assume you paid $700 in interest on your student loans last year, put $2,000 in on them reduces taxable income dollar-for-dollar. Knowing that fact, what is now your taxable income? to a health savings account (HSA), and expendi tures are all tax exempt, meaning that any money spent Answer is complete and correct 65.000 d. Next, you can either take the so called standard deduction or apply for itemized deductions (which involve a lot of tedious paperwork). You opt for the standard deduction that allows you as head of your household to exempt another $8,500 from your taxable income. Taking that into account, what is your taxable income? Answer is complete and correct 56,500Explanation / Answer
(e)
Taxable income = $56,500
Calculate tax -
Tax = [$17,850 * 0.10] + [$38,650 * 0.15] = $1,785 + $5,977.5 = $7,582.50
The amount owed as federal income tax is $7,582.50.
(f)
Federal income tax owed = $7,582.50
Tax credit = $1,000
Amount actually paid in tax = $7,582.50 - $1,000 = $6,582.50
The amount that has to be paid actually in tax is $6,582.50.
Calculate the average tax rate relative to gross income -
Gross income = $85,000
Actual tax to be paid = $6,582.50
Average tax rate = $6,582.50/$85,000 = 0.0774 or 7.74 percent
Thus,
The average tax rate relative to gross income is 7.74 percent.