Individual Income Taxes
43rd Edition
ISBN: 9780357109731
Author: Hoffman
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 5, Problem 16DQ
Tammy, a resident of Virginia, is considering purchasing a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. She is aware that State of Virginia bonds of comparable risk are yielding 4.5%. However, the Virginia bonds are exempt from Virginia tax, but the North Carolina bond interest is taxable in Virginia. Which of the two options will provide the greater after-tax return to Tammy? Tammy can deduct any state taxes paid on her Federal income tax return. In your analysis, assume that the bond amount is $100,000.
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Katie, a resident of Virginia, is considering purchasing a $100,000 North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. She is aware that State of Virginia bonds of comparable risk are yielding 4.5%. However, the Virginia bonds are exempt from Virginia tax, but the North Carolina bond interest is taxable in Virginia. Katie can deduct any state taxes paid on her Federal income tax return. In your analysis, assume that the bond amount is $100,000.
If required, round your computations and answers to the nearest dollar. Assume that Katie itemizes her deductions for federal taxes.
Determine the after tax income from each bond.
Virginia Bond:
$fill in the blank 1
North Carolina Bond:
$fill in the blank 2
Dana intends to invest $66,000 in either a Treasury bond or a corporate bond. The treasury bond yields 5 percent before tax, and the corporate bond yields 6 percent before tax. Assume Dana's federal marginal rate is 24 percent and she itemizes deductions.
a-2. How much interest after-tax would Dana earn by investing in the corporate bond?
b-1. If she were to move to another state where her marginal state rate would be 10 percent, which of the two options should she choose?
b-2. How much interest after-tax would Dana earn by investing in the corporate bond as per requirement b-1?
Tonya, who lives in California, inherited a $100,000 State of California bond in 2021. Her marginal
Federal tax rate is 35%, she itemizes deductions on her Federal tax return, and her marginal state tax
rate is 5%. The California bond pays 3.3% interest, which is not subject to California income tax. She can
purchase a corporate bond of comparable risk that will yield 5.2% or a U.S. government bond that pays
4.6% interest.
What is the after-tax income from each bond?
California bond: $
Corporate bond: $
U.S. government bond: $
Chapter 5 Solutions
Individual Income Taxes
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