The federal tax liability. Personal Taxes: The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society. Capital Gain or Loss: Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

Question

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Answer 1

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 3, Problem 18P

a.

Summary Introduction

To determine: The federal tax liability.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

a.

Expert Solution

Explanation of Solution

Calculation of the federal tax liability:

Federal tax liability=(Tax on dividend income+Tax on long-term capital gain+Tax on other income)

Substitute $1,800 for the tax on dividend income, $1,950 for tax on long-term capital gain and $12,793.75 for the tax on other income (working note) in the above formula.

Federal tax liability=($1,800+$1,950+$12,793.75)=$16,543.50

The federal tax liability is $16,543.50.

Working note:

The calculation of taxable income:

1. Income from salary is $82,000.

Income from investment includes:

2. Dividend received is $12,000.
3. Stock purchased is $9,000. So, the capital gain is $13,000 ($22,000−$9,000) . As the stock is held more than one year, as it is a long-term capital gain.
4. Another stock has been purchased six months back at $7,500 and it is sold at $10,000. The capital gain is $2,500 ($10,000−$7,500)
5. The total income of the person subject to tax is $114,500 ($82,000+$12,000+$5,000+$13,000+$2,500)
6. As per federal guideline, $4,000 exemption is available for taxpayer and also for the dependents. Also, the itemized deduction will be $7,500.

Calculation of the taxable income:

Taxable income=(Gross income−Total exemption of $4,000 each−Itemized deduction)=($114,500−$4,000−$7,500)=$103,000

The taxable income should be $103,000.

7. Out of $103,000 taxable income, 15% will be paid on long-term capital gain and dividend.
8. The tax amount is,
Taxable income=Long-term capital gain+Dividend=$13,000+$12,000=$25,000
9. The income tax at the ordinary rate is $78,000 ($103,000−$25,000)

Calculation of the tax on dividend income:

Tax on dividend income=$12,000×15%=$1,800

The tax on dividend income is $1,800.

Calculation of the tax on long-term capital gain:

Tax on long-term capital gain=$13,000×15%=$1,950

The tax on the long-term capital gain is $1,950.

Calculation of tax on other income:

Tax on other income=[($9,225×10%)+($28,225×15%)+($30,550×25%)]=$922.50+$4,233.75+$7,637.50=$12,793.75

The tax on other income is $12,793.75.

Conclusion

Thus, the federal tax liability is $16,543.75.

b.

Summary Introduction

To determine: The marginal tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

b.

Expert Solution

Explanation of Solution

The marginal tax rate is the tax rate applicable to the last dollar taxable income. So, the highest tax rate applied is 25%.

Conclusion

Thus, the marginal tax rate is 25%.

c.

Summary Introduction

To determine: The average tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

c.

Expert Solution

Explanation of Solution

Explnation:

Calculated,

The total tax paid is $16,543.75. (refer part a.).

The taxable income is $103,000 (refer part a.)

Calculation of the average tax rate:

The formula to calculate the average tax rate is,

Average tax rate=Total tax paidTotal taxable income×100

Substitute $16,543.75 for the total tax paid and $103,000 for the total taxable income in the above formula.

Average tax rate=$16,543.75$103,000×100=16.06%

Conclusion

Thus, the average tax rate is 17.79%.

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Answer 2

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 3, Problem 18P

a.

Summary Introduction

To determine: The federal tax liability.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

a.

Expert Solution

Explanation of Solution

Calculation of the federal tax liability:

Federal tax liability=(Tax on dividend income+Tax on long-term capital gain+Tax on other income)

Substitute $1,800 for the tax on dividend income, $1,950 for tax on long-term capital gain and $12,793.75 for the tax on other income (working note) in the above formula.

Federal tax liability=($1,800+$1,950+$12,793.75)=$16,543.50

The federal tax liability is $16,543.50.

Working note:

The calculation of taxable income:

1. Income from salary is $82,000.

Income from investment includes:

2. Dividend received is $12,000.
3. Stock purchased is $9,000. So, the capital gain is $13,000 ($22,000−$9,000) . As the stock is held more than one year, as it is a long-term capital gain.
4. Another stock has been purchased six months back at $7,500 and it is sold at $10,000. The capital gain is $2,500 ($10,000−$7,500)
5. The total income of the person subject to tax is $114,500 ($82,000+$12,000+$5,000+$13,000+$2,500)
6. As per federal guideline, $4,000 exemption is available for taxpayer and also for the dependents. Also, the itemized deduction will be $7,500.

Calculation of the taxable income:

Taxable income=(Gross income−Total exemption of $4,000 each−Itemized deduction)=($114,500−$4,000−$7,500)=$103,000

The taxable income should be $103,000.

7. Out of $103,000 taxable income, 15% will be paid on long-term capital gain and dividend.
8. The tax amount is,
Taxable income=Long-term capital gain+Dividend=$13,000+$12,000=$25,000
9. The income tax at the ordinary rate is $78,000 ($103,000−$25,000)

Calculation of the tax on dividend income:

Tax on dividend income=$12,000×15%=$1,800

The tax on dividend income is $1,800.

Calculation of the tax on long-term capital gain:

Tax on long-term capital gain=$13,000×15%=$1,950

The tax on the long-term capital gain is $1,950.

Calculation of tax on other income:

Tax on other income=[($9,225×10%)+($28,225×15%)+($30,550×25%)]=$922.50+$4,233.75+$7,637.50=$12,793.75

The tax on other income is $12,793.75.

Conclusion

Thus, the federal tax liability is $16,543.75.

b.

Summary Introduction

To determine: The marginal tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

b.

Expert Solution

Explanation of Solution

The marginal tax rate is the tax rate applicable to the last dollar taxable income. So, the highest tax rate applied is 25%.

Conclusion

Thus, the marginal tax rate is 25%.

c.

Summary Introduction

To determine: The average tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

c.

Expert Solution

Explanation of Solution

Explnation:

Calculated,

The total tax paid is $16,543.75. (refer part a.).

The taxable income is $103,000 (refer part a.)

Calculation of the average tax rate:

The formula to calculate the average tax rate is,

Average tax rate=Total tax paidTotal taxable income×100

Substitute $16,543.75 for the total tax paid and $103,000 for the total taxable income in the above formula.

Average tax rate=$16,543.75$103,000×100=16.06%

Conclusion

Thus, the average tax rate is 17.79%.

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Answer 3

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 3, Problem 18P

a.

Summary Introduction

To determine: The federal tax liability.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

a.

Expert Solution

Explanation of Solution

Calculation of the federal tax liability:

Federal tax liability=(Tax on dividend income+Tax on long-term capital gain+Tax on other income)

Substitute $1,800 for the tax on dividend income, $1,950 for tax on long-term capital gain and $12,793.75 for the tax on other income (working note) in the above formula.

Federal tax liability=($1,800+$1,950+$12,793.75)=$16,543.50

The federal tax liability is $16,543.50.

Working note:

The calculation of taxable income:

1. Income from salary is $82,000.

Income from investment includes:

2. Dividend received is $12,000.
3. Stock purchased is $9,000. So, the capital gain is $13,000 ($22,000−$9,000) . As the stock is held more than one year, as it is a long-term capital gain.
4. Another stock has been purchased six months back at $7,500 and it is sold at $10,000. The capital gain is $2,500 ($10,000−$7,500)
5. The total income of the person subject to tax is $114,500 ($82,000+$12,000+$5,000+$13,000+$2,500)
6. As per federal guideline, $4,000 exemption is available for taxpayer and also for the dependents. Also, the itemized deduction will be $7,500.

Calculation of the taxable income:

Taxable income=(Gross income−Total exemption of $4,000 each−Itemized deduction)=($114,500−$4,000−$7,500)=$103,000

The taxable income should be $103,000.

7. Out of $103,000 taxable income, 15% will be paid on long-term capital gain and dividend.
8. The tax amount is,
Taxable income=Long-term capital gain+Dividend=$13,000+$12,000=$25,000
9. The income tax at the ordinary rate is $78,000 ($103,000−$25,000)

Calculation of the tax on dividend income:

Tax on dividend income=$12,000×15%=$1,800

The tax on dividend income is $1,800.

Calculation of the tax on long-term capital gain:

Tax on long-term capital gain=$13,000×15%=$1,950

The tax on the long-term capital gain is $1,950.

Calculation of tax on other income:

Tax on other income=[($9,225×10%)+($28,225×15%)+($30,550×25%)]=$922.50+$4,233.75+$7,637.50=$12,793.75

The tax on other income is $12,793.75.

Conclusion

Thus, the federal tax liability is $16,543.75.

b.

Summary Introduction

To determine: The marginal tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

b.

Expert Solution

Explanation of Solution

The marginal tax rate is the tax rate applicable to the last dollar taxable income. So, the highest tax rate applied is 25%.

Conclusion

Thus, the marginal tax rate is 25%.

c.

Summary Introduction

To determine: The average tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

c.

Expert Solution

Explanation of Solution

Explnation:

Calculated,

The total tax paid is $16,543.75. (refer part a.).

The taxable income is $103,000 (refer part a.)

Calculation of the average tax rate:

The formula to calculate the average tax rate is,

Average tax rate=Total tax paidTotal taxable income×100

Substitute $16,543.75 for the total tax paid and $103,000 for the total taxable income in the above formula.

Average tax rate=$16,543.75$103,000×100=16.06%

Conclusion

Thus, the average tax rate is 17.79%.

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Answer 4

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 3, Problem 18P

a.

Summary Introduction

To determine: The federal tax liability.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

a.

Expert Solution

Explanation of Solution

Calculation of the federal tax liability:

Federal tax liability=(Tax on dividend income+Tax on long-term capital gain+Tax on other income)

Substitute $1,800 for the tax on dividend income, $1,950 for tax on long-term capital gain and $12,793.75 for the tax on other income (working note) in the above formula.

Federal tax liability=($1,800+$1,950+$12,793.75)=$16,543.50

The federal tax liability is $16,543.50.

Working note:

The calculation of taxable income:

1. Income from salary is $82,000.

Income from investment includes:

2. Dividend received is $12,000.
3. Stock purchased is $9,000. So, the capital gain is $13,000 ($22,000−$9,000) . As the stock is held more than one year, as it is a long-term capital gain.
4. Another stock has been purchased six months back at $7,500 and it is sold at $10,000. The capital gain is $2,500 ($10,000−$7,500)
5. The total income of the person subject to tax is $114,500 ($82,000+$12,000+$5,000+$13,000+$2,500)
6. As per federal guideline, $4,000 exemption is available for taxpayer and also for the dependents. Also, the itemized deduction will be $7,500.

Calculation of the taxable income:

Taxable income=(Gross income−Total exemption of $4,000 each−Itemized deduction)=($114,500−$4,000−$7,500)=$103,000

The taxable income should be $103,000.

7. Out of $103,000 taxable income, 15% will be paid on long-term capital gain and dividend.
8. The tax amount is,
Taxable income=Long-term capital gain+Dividend=$13,000+$12,000=$25,000
9. The income tax at the ordinary rate is $78,000 ($103,000−$25,000)

Calculation of the tax on dividend income:

Tax on dividend income=$12,000×15%=$1,800

The tax on dividend income is $1,800.

Calculation of the tax on long-term capital gain:

Tax on long-term capital gain=$13,000×15%=$1,950

The tax on the long-term capital gain is $1,950.

Calculation of tax on other income:

Tax on other income=[($9,225×10%)+($28,225×15%)+($30,550×25%)]=$922.50+$4,233.75+$7,637.50=$12,793.75

The tax on other income is $12,793.75.

Conclusion

Thus, the federal tax liability is $16,543.75.

b.

Summary Introduction

To determine: The marginal tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

b.

Expert Solution

Explanation of Solution

The marginal tax rate is the tax rate applicable to the last dollar taxable income. So, the highest tax rate applied is 25%.

Conclusion

Thus, the marginal tax rate is 25%.

c.

Summary Introduction

To determine: The average tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

c.

Expert Solution

Explanation of Solution

Explnation:

Calculated,

The total tax paid is $16,543.75. (refer part a.).

The taxable income is $103,000 (refer part a.)

Calculation of the average tax rate:

The formula to calculate the average tax rate is,

Average tax rate=Total tax paidTotal taxable income×100

Substitute $16,543.75 for the total tax paid and $103,000 for the total taxable income in the above formula.

Average tax rate=$16,543.75$103,000×100=16.06%

Conclusion

Thus, the average tax rate is 17.79%.

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Answer 5

Chapter 3, Problem 18P

a.

Summary Introduction

To determine: The federal tax liability.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

a.

Expert Solution

Explanation of Solution

Calculation of the federal tax liability:

Federal tax liability=(Tax on dividend income+Tax on long-term capital gain+Tax on other income)

Substitute $1,800 for the tax on dividend income, $1,950 for tax on long-term capital gain and $12,793.75 for the tax on other income (working note) in the above formula.

Federal tax liability=($1,800+$1,950+$12,793.75)=$16,543.50

The federal tax liability is $16,543.50.

Working note:

The calculation of taxable income:

1. Income from salary is $82,000.

Income from investment includes:

2. Dividend received is $12,000.
3. Stock purchased is $9,000. So, the capital gain is $13,000 ($22,000−$9,000) . As the stock is held more than one year, as it is a long-term capital gain.
4. Another stock has been purchased six months back at $7,500 and it is sold at $10,000. The capital gain is $2,500 ($10,000−$7,500)
5. The total income of the person subject to tax is $114,500 ($82,000+$12,000+$5,000+$13,000+$2,500)
6. As per federal guideline, $4,000 exemption is available for taxpayer and also for the dependents. Also, the itemized deduction will be $7,500.

Calculation of the taxable income:

Taxable income=(Gross income−Total exemption of $4,000 each−Itemized deduction)=($114,500−$4,000−$7,500)=$103,000

The taxable income should be $103,000.

7. Out of $103,000 taxable income, 15% will be paid on long-term capital gain and dividend.
8. The tax amount is,
Taxable income=Long-term capital gain+Dividend=$13,000+$12,000=$25,000
9. The income tax at the ordinary rate is $78,000 ($103,000−$25,000)

Calculation of the tax on dividend income:

Tax on dividend income=$12,000×15%=$1,800

The tax on dividend income is $1,800.

Calculation of the tax on long-term capital gain:

Tax on long-term capital gain=$13,000×15%=$1,950

The tax on the long-term capital gain is $1,950.

Calculation of tax on other income:

Tax on other income=[($9,225×10%)+($28,225×15%)+($30,550×25%)]=$922.50+$4,233.75+$7,637.50=$12,793.75

The tax on other income is $12,793.75.

Conclusion

Thus, the federal tax liability is $16,543.75.

b.

Summary Introduction

To determine: The marginal tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

b.

Expert Solution

Explanation of Solution

The marginal tax rate is the tax rate applicable to the last dollar taxable income. So, the highest tax rate applied is 25%.

Conclusion

Thus, the marginal tax rate is 25%.

c.

Summary Introduction

To determine: The average tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

c.

Expert Solution

Explanation of Solution

Explnation:

Calculated,

The total tax paid is $16,543.75. (refer part a.).

The taxable income is $103,000 (refer part a.)

Calculation of the average tax rate:

The formula to calculate the average tax rate is,

Average tax rate=Total tax paidTotal taxable income×100

Substitute $16,543.75 for the total tax paid and $103,000 for the total taxable income in the above formula.

Average tax rate=$16,543.75$103,000×100=16.06%

Conclusion

Thus, the average tax rate is 17.79%.

Answer 6

Chapter 3, Problem 18P

a.

Summary Introduction

To determine: The federal tax liability.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

a.

Expert Solution

Explanation of Solution

Calculation of the federal tax liability:

Federal tax liability=(Tax on dividend income+Tax on long-term capital gain+Tax on other income)

Substitute $1,800 for the tax on dividend income, $1,950 for tax on long-term capital gain and $12,793.75 for the tax on other income (working note) in the above formula.

Federal tax liability=($1,800+$1,950+$12,793.75)=$16,543.50

The federal tax liability is $16,543.50.

Working note:

The calculation of taxable income:

1. Income from salary is $82,000.

Income from investment includes:

2. Dividend received is $12,000.
3. Stock purchased is $9,000. So, the capital gain is $13,000 ($22,000−$9,000) . As the stock is held more than one year, as it is a long-term capital gain.
4. Another stock has been purchased six months back at $7,500 and it is sold at $10,000. The capital gain is $2,500 ($10,000−$7,500)
5. The total income of the person subject to tax is $114,500 ($82,000+$12,000+$5,000+$13,000+$2,500)
6. As per federal guideline, $4,000 exemption is available for taxpayer and also for the dependents. Also, the itemized deduction will be $7,500.

Calculation of the taxable income:

Taxable income=(Gross income−Total exemption of $4,000 each−Itemized deduction)=($114,500−$4,000−$7,500)=$103,000

The taxable income should be $103,000.

7. Out of $103,000 taxable income, 15% will be paid on long-term capital gain and dividend.
8. The tax amount is,
Taxable income=Long-term capital gain+Dividend=$13,000+$12,000=$25,000
9. The income tax at the ordinary rate is $78,000 ($103,000−$25,000)

Calculation of the tax on dividend income:

Tax on dividend income=$12,000×15%=$1,800

The tax on dividend income is $1,800.

Calculation of the tax on long-term capital gain:

Tax on long-term capital gain=$13,000×15%=$1,950

The tax on the long-term capital gain is $1,950.

Calculation of tax on other income:

Tax on other income=[($9,225×10%)+($28,225×15%)+($30,550×25%)]=$922.50+$4,233.75+$7,637.50=$12,793.75

The tax on other income is $12,793.75.

Conclusion

Thus, the federal tax liability is $16,543.75.

Answer 7

Chapter 3, Problem 18P

a.

Summary Introduction

To determine: The federal tax liability.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

Answer 8

a.

Expert Solution

Explanation of Solution

Calculation of the federal tax liability:

Federal tax liability=(Tax on dividend income+Tax on long-term capital gain+Tax on other income)

Substitute $1,800 for the tax on dividend income, $1,950 for tax on long-term capital gain and $12,793.75 for the tax on other income (working note) in the above formula.

Federal tax liability=($1,800+$1,950+$12,793.75)=$16,543.50

The federal tax liability is $16,543.50.

Working note:

The calculation of taxable income:

1. Income from salary is $82,000.

Income from investment includes:

2. Dividend received is $12,000.
3. Stock purchased is $9,000. So, the capital gain is $13,000 ($22,000−$9,000) . As the stock is held more than one year, as it is a long-term capital gain.
4. Another stock has been purchased six months back at $7,500 and it is sold at $10,000. The capital gain is $2,500 ($10,000−$7,500)
5. The total income of the person subject to tax is $114,500 ($82,000+$12,000+$5,000+$13,000+$2,500)
6. As per federal guideline, $4,000 exemption is available for taxpayer and also for the dependents. Also, the itemized deduction will be $7,500.

Calculation of the taxable income:

Taxable income=(Gross income−Total exemption of $4,000 each−Itemized deduction)=($114,500−$4,000−$7,500)=$103,000

The taxable income should be $103,000.

7. Out of $103,000 taxable income, 15% will be paid on long-term capital gain and dividend.
8. The tax amount is,
Taxable income=Long-term capital gain+Dividend=$13,000+$12,000=$25,000
9. The income tax at the ordinary rate is $78,000 ($103,000−$25,000)

Calculation of the tax on dividend income:

Tax on dividend income=$12,000×15%=$1,800

The tax on dividend income is $1,800.

Calculation of the tax on long-term capital gain:

Tax on long-term capital gain=$13,000×15%=$1,950

The tax on the long-term capital gain is $1,950.

Calculation of tax on other income:

Tax on other income=[($9,225×10%)+($28,225×15%)+($30,550×25%)]=$922.50+$4,233.75+$7,637.50=$12,793.75

The tax on other income is $12,793.75.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Conclusion

Thus, the federal tax liability is $16,543.75.

Answer 13

b.

Summary Introduction

To determine: The marginal tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

b.

Expert Solution

Explanation of Solution

The marginal tax rate is the tax rate applicable to the last dollar taxable income. So, the highest tax rate applied is 25%.

Conclusion

Thus, the marginal tax rate is 25%.

Answer 14

b.

Summary Introduction

To determine: The marginal tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

Answer 15

b.

Expert Solution

Explanation of Solution

The marginal tax rate is the tax rate applicable to the last dollar taxable income. So, the highest tax rate applied is 25%.

Answer 16

b.

Expert Solution

Answer 17

b.

Expert Solution

Answer 18

Expert Solution

Answer 19

Conclusion

Thus, the marginal tax rate is 25%.

Answer 20

c.

Summary Introduction

To determine: The average tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

c.

Expert Solution

Explanation of Solution

Explnation:

Calculated,

The total tax paid is $16,543.75. (refer part a.).

The taxable income is $103,000 (refer part a.)

Calculation of the average tax rate:

The formula to calculate the average tax rate is,

Average tax rate=Total tax paidTotal taxable income×100

Substitute $16,543.75 for the total tax paid and $103,000 for the total taxable income in the above formula.

Average tax rate=$16,543.75$103,000×100=16.06%

Conclusion

Thus, the average tax rate is 17.79%.

Answer 21

c.

Summary Introduction

To determine: The average tax rate.

Personal Taxes:

The personal taxes refer to those taxes which an individual has to pay on his income. This tax is an important source of revenue and the amount of tax is used for the welfare activities of the society.

Capital Gain or Loss:

Whenever a security is bought or sold, there is the difference between the buy price and the selling price. If the selling price is greater than the price at which it was bought, there is a capital gain and if the buying price is more than the selling price, there is a capital loss. The capital gains are subject to tax.

Answer 22

c.

Expert Solution

Explanation of Solution

Explnation:

Calculated,

The total tax paid is $16,543.75. (refer part a.).

The taxable income is $103,000 (refer part a.)

Calculation of the average tax rate:

The formula to calculate the average tax rate is,

Average tax rate=Total tax paidTotal taxable income×100

Substitute $16,543.75 for the total tax paid and $103,000 for the total taxable income in the above formula.

Average tax rate=$16,543.75$103,000×100=16.06%

Answer 23

c.

Expert Solution

Answer 24

c.

Expert Solution

Answer 25

Expert Solution

Answer 26

Conclusion

Thus, the average tax rate is 17.79%.

Answer 27

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