Mary Jarvis is a single individual who is working on filing her tax return for t
ID: 2330689 • Letter: M
Question
Mary Jarvis is a single individual who is working on filing her tax return for the previous year. She has assembled the following relevant information:
She received $128,000 in salary.
She received $16,000 of dividend income.
She received $8,800 of interest income on Home Depot bonds.
She received $22,500 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $5,600.
She received $9,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $6,200.
Mary receives one exemption ($4,000), and she has allowable itemized deductions of $7,500. These amounts will be deducted from her gross income to determine her taxable income.
Assume that her tax rates are based on Table 3.5. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.
Open spreadsheet
What is Mary's federal tax liability? Round your answer to the nearest cent. Do not round intermediate calculations.
$
What is her marginal tax rate? Round your answer to 1 decimal place.
%
What is her average tax rate? Round your answer to 2 decimal places.
%
Explanation / Answer
1 Mary's federal tax liability Salary Income $128,000 Dividend income $16,000 Interest income $8,800 Long term capital gain (22500-5600) $16,900 Short tem capital gain (9000-6200) $2,800 Gross Income $172,500 Less: Exemption $4,000 Itemized deductions $7,500 Taxable Income $161,000 Tax on Dividend income @ 15% $2,400 Tax on long term capital gain @ 15% $2,535 Tax on remaining income of $128,100 Tax on first $9525 @ 10% $952.50 Tax on next $29,174 @12% $3,500.88 Tax on next $43,799 @22% $9,635.78 Tax on next $45,599 @24% (128100-82501) $10,943.76 Total Federal tax liability $29,967.92 2 Marginal Tax rate 10% on income from 0-$9525 $952.50 12% on income from $9526-$38700 $3,500.88 22% on income from $38701-$82500 $9,635.78 24% on income from $82501-$128100 $10,943.76 Total tax $25,032.92 Total income $128,100 Marginal Tax rate 24% 3 Average tax rate Total tax liability $29,967.92 Total taxable income $161,000 Average tax rate 18.61%