ECO 2010 INCLUSIVE ACCESS
ECO 2010 INCLUSIVE ACCESS
21st Edition
ISBN: 9781260564624
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 20, Problem 3P

Subpart (a):

To determine

Gross income.

Subpart (a):

Expert Solution
Check Mark

Explanation of Solution

The Gross income can be calculated as follows.

Gross Income = Wages + Investment + Gifts                      = $50,000+ $10,000 + $5000                      = $65,000

Gross income is $65,000.

Economics Concept Introduction

Concept Introduction:

Gross income: It is an individual's income and the receipts from nearly all the sources.

Subpart (b):

To determine

Taxable income.

Subpart (b):

Expert Solution
Check Mark

Explanation of Solution

The taxable income can be calculated as follows.

Taxable Income=Taxable incomeGift(Number of person×tax reduction)=65,0005,000(2×4,050)=65,0005,0008,100=51,900

Taxable income is $51,900.

Economics Concept Introduction

Concept Introduction:

Taxable income: It is the amount of income used to calculate an individual's or a company's income tax due.

Subpart (c):

To determine

New taxable income.

Subpart (c):

Expert Solution
Check Mark

Explanation of Solution

New taxable income can be calculated as follows.

New Taxable income=Taxable incomeOldInterest on student loanHSAIRA                                =52,7007002,0004,000                                =46,000

New taxable income is $46,000.

Economics Concept Introduction

Concept Introduction:

Taxable income: It is the amount of income used to calculate an individual's or a company's income tax due.

Subpart (d):

To determine

Taxable income.

Subpart (d):

Expert Solution
Check Mark

Explanation of Solution

Taxable income after the deduction can be calculated as follows.

Taxable income = New taxable incomeStandard deduction=46,0008,500=37,500

Taxable income after deduction is $37,500.

Economics Concept Introduction

Concept Introduction:

Taxable income: It is the amount of income used to calculate an individual's or a company's income tax due.

Subpart (e):

To determine

Tax payment.

Subpart (e):

Expert Solution
Check Mark

Explanation of Solution

Table -1 shows the tax schedule.

Table -1

(1)

Total Taxable income

(2)

Marginal tax rate, %

$0 - $17,850 10
$17,851-$72,500 15
$72,501-$146,400 25
$146,401 - $223,050 28
$223,051-$398,350 33
398,351- $450,000 35
$450,001 and above 39.6

Tax payment can be calculated as follows.

Tax payment=(17,8500)0.1+(Taxable income17,850)0.15=(17,8500)0.1+(37,50017,850)0.15=1,785+2,947.5=4,732.5

The total tax payment is $4,732.5. The tax rate for the last dollar is 15%. Thus, the marginal tax rate is 15%.

Economics Concept Introduction

Concept Introduction:

Tax payment: It is the amount that an individual's or a company's income tax due.

Subpart (f):

To determine

Tax payment.

Subpart (f):

Expert Solution
Check Mark

Explanation of Solution

The actual tax payment after the tax credit can be calculated as follows.

Tax payment=Tax liabilityChild tax credit=4,732.501000=3,732.50

The actual tax payment is $3,732.5.

Average tax rate relative to the taxable income can be calculated as follows.

Average tax rate=Tax paymentTaxable income=(3,732.5037,500)=0.0995

Average tax rate relative to the taxable income is 9.95%

Average tax rate relative to the total income can be calculated as follows.

Average tax rate=Tax paymentTaxable income=(3,732.5065,000)=0.0574

Average tax rate relative to the taxable income is 5.74%.

Economics Concept Introduction

Concept Introduction:

Tax payment: It is the amount that an individual's or a company's income tax due.

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