Concept Review 3.5- Please go to page 152 of the textbook. Please complete the Financial Planning Case A SINGLE FATHER'S TAX SITUATION Complete questions 1 - 5. Ever since his wife’s death, Eric Stanford has faced difficult personal and financial circumstances. His job provides him with a good income but keeps him away from his daughters, ages 8 and 10, nearly 20 days a month. This requires him to use in-home child care services that consume a large portion of his income. Since the Stanfords live in a small apartment, this arrangement has been very inconvenient. Due to the costs of caring for his children, Eric has only a minimal amount withheld from his salary for federal income taxes. This makes more money available during the year, but for the last few years he has to make large payments in April - another financial burden. Although Eric has created an investment fund for his daughters’ college education and for his retirement, he has not sought to look at several aspects of his tax planning activities to find strategies that will best serve his current and future financial needs. Eric has assembled the following information for the current tax year: Earnings from wages: $99,170 Interest earned on savings: $150 IRA deduction: $5,500 Checking account interest: $80 Current standard deduction for filing status: $18,000 Amount withheld for federal income tax: $10,178 Tax credit for child care: $600 Filing Status: Head of Household Answer the following questions: What are Eric’s major financial concerns in his current situation? In what ways might Eric improve his tax planning efforts? Is Eric typical of many people in our society with regard to tax planning? Why or why not? What additional actions might Eric investigate into with regard to taxes and personal financial planning? Also calculate the following: 1. What is Eric's taxable income? 2. What is his total tax liability? 3. What is his average tax rate? 4. Based on his withholding, will Eric receive a refund or owe additional tax? What is the amount? Please list each component of the answer Gross Income Adjustments Standard Deduction Exemptions Taxable income Tax Liability Tax Credits Final Tax Liability Marginal Tax Rate Average Tax Rate
Ever since his wife’s death, Eric Stanford has faced difficult personal and financial circumstances. His job provides him with a good income but keeps him away from his daughters, ages 8 and 10, nearly 20 days a month. This requires him to use in-home child care services that consume a large portion of his income. Since the Stanfords live in a small apartment, this arrangement has been very inconvenient. Due to the costs of caring for his children, Eric has only a minimal amount withheld from his salary for federal income taxes. This makes more money available during the year, but for the last few years he has to make large payments in April - another financial burden. Although Eric has created an investment fund for his daughters’ college education and for his retirement, he has not sought to look at several aspects of his tax planning activities to find strategies that will best serve his current and future financial needs. Eric has assembled the following information for the current tax year:
Earnings from wages: $99,170
Interest earned on savings: $150
IRA deduction: $5,500
Checking account interest: $80
Current standard deduction for filing status: $18,000
Amount withheld for federal income tax: $10,178
Tax credit for child care: $600
Filing Status: Head of Household
Answer the following questions:
- What are Eric’s major financial concerns in his current situation?
- In what ways might Eric improve his tax planning efforts?
- Is Eric typical of many people in our society with regard to tax planning? Why or why not?
- What additional actions might Eric investigate into with regard to taxes and personal financial planning?
Also calculate the following:
1. What is Eric's taxable income?
2. What is his total tax liability?
3. What is his average tax rate?
4. Based on his withholding, will Eric receive a refund or owe additional tax? What is the amount?
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