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Business Accounting McGraw-Hill's Taxation of Individuals and Business Entities 2020 Edition

a) Introduction: The income is a direct tax which is charged by the government of the country to the income of the individuals, organizations, and companies. The income tax rates are predefined and is charged accordingly. To determine: The income tax and net investment income tax liability assuming all the income is salary from employer. Taxable income = $450,000 The calculation of income tax and net investment income tax liability is as follows: Particulars Amount ($) Calculation Taxable income 450,000 Preferentially taxed income 0 Income taxed at ordinary rates 450,000 Tax on income taxed at ordinary rates 132,693.50 $46,628.50 + (($450,000-$204,100) *35%) Tax on preferentially taxed income 0 Income tax liability 132,693.50 Net investment income tax 0 Total income liability 132,693.50 b) Introduction: The income is a direct tax which is charged by the government of the country to the income of the individuals, organizations, and companies. The income tax rates are predefined and is charged accordingly. To determine: The income tax and net investment income tax liability assuming taxable income include $2,000 long-term capital gain that is taxed at preferential rate. Total taxable income = $450,000 Long-term capital gain = $2,000 The calculation of income tax and net investment income tax liability is as follows: Particulars Amount ($) Calculation Taxable income 450,000 Preferentially taxed income (2,000) Income taxed at ordinary rates 448,000 Tax on income taxed at ordinary rates 131,993.50 $46,628.50 + (($448,000-$204,100) *35%) Tax on preferentially taxed income 400 ($2,000*20%) Income tax liability 132,393.50 Net investment income tax 76 ($2,000*3.8%) Total income liability 132,469.50 c) Introduction: The income is a direct tax which is charged by the government of the country to the income of the individuals, organizations, and companies. The income tax rates are predefined and is charged accordingly. To determine: The income tax and net investment income tax liability assuming taxable income include $55,000 long-term capital gain that is taxed at preferential rate. Total taxable income = $450,000 Long-term capital gain = $55,000 The calculation of income tax and net investment income tax liability is as follows: Particulars Amount ($) Calculation Taxable income 450,000 Preferentially taxed income (55,000) Income taxed at ordinary rates 395,000 Tax on income taxed at ordinary rates 113,443.50 $46,628.50 + (($395,000-$204,100) *35%) Tax on preferentially taxed income 9,022.50 (working note 1) Income tax liability 122,466 Net investment income tax 2,090 ($55,000*3.8%) Total income liability 124,556 Working note 1: The calculation of tax on preferentially taxed income is calculated as follows: Particular working Amount ($) Total taxable income 450,000 Less: income above $434,550 (434,550) Taxable at 20% 15,450 Preferentially taxed income 55,000 Less: income taxable at 20% (15,450) Income taxable at 15% 39,550 Income taxable at 20% ($15,450*20%) 3,090 Income taxable at 15% ($39,550*15%) 5,932.50 Tax on preferentially taxed income 9,022.50 d) Introduction: The income is a direct tax which is charged by the government of the country to the income of the individuals, organizations, and companies. The income tax rates are predefined and is charged accordingly. To determine: The income tax and net investment income tax liability with the given assumptions. Total taxable income = $195,000 Long-term capital gain = $50,000 Modified AGI = $210,000 The calculation of income tax and net investment income tax liability is as follows: Particulars Amount ($) Calculation Taxable income 195,000 Preferentially taxed income (50,000) Income taxed at ordinary rates 145,000 Tax on income taxed at ordinary rates 28,974.50 $14,382.50 + (($145,000-$84,200) *24%) Tax on preferentially taxed income 7,500 (Working note 1) Income tax liability 36,474.50 Net investment income tax 380 ($10,000*3.8%) Total income liability 36,854.50 Total AGI = $210,000 Income above $200,000 = $10,000 Net investment income tax is applied on AGI over $200,000 at 3.8%. Therefore, it will be applied on $10,000 in the given case. Working note 1: The calculation of tax on preferentially taxed income is calculated as follows: Particular working Amount ($) Total taxable income 195,000 Less: income above $434,550 (0) Taxable at 20% 0 Preferentially taxed income 50,000 Less: income taxable at 20% (0) Income taxable at 15% 50,000 Income taxable at 20% 0 Income taxable at 15% ($50,000*15%) 7,500 Tax on preferentially taxed income 7,500

a) Introduction: The income is a direct tax which is charged by the government of the country to the income of the individuals, organizations, and companies. The income tax rates are predefined and is charged accordingly. To determine: The income tax and net investment income tax liability assuming all the income is salary from employer. Taxable income = $450,000 The calculation of income tax and net investment income tax liability is as follows: Particulars Amount ($) Calculation Taxable income 450,000 Preferentially taxed income 0 Income taxed at ordinary rates 450,000 Tax on income taxed at ordinary rates 132,693.50 $46,628.50 + (($450,000-$204,100) 35%) Tax on preferentially taxed income 0 Income tax liability 132,693.50 Net investment income tax 0 Total income liability 132,693.50 b) Introduction: The income is a direct tax which is charged by the government of the country to the income of the individuals, organizations, and companies. The income tax rates are predefined and is charged accordingly. To determine: The income tax and net investment income tax liability assuming taxable income include $2,000 long-term capital gain that is taxed at preferential rate. Total taxable income = $450,000 Long-term capital gain = $2,000 The calculation of income tax and net investment income tax liability is as follows: Particulars Amount ($) Calculation Taxable income 450,000 Preferentially taxed income (2,000) Income taxed at ordinary rates 448,000 Tax on income taxed at ordinary rates 131,993.50 $46,628.50 + (($448,000-$204,100) 35%) Tax on preferentially taxed income 400 ($2,00020%) Income tax liability 132,393.50 Net investment income tax 76 ($2,0003.8%) Total income liability 132,469.50 c) Introduction: The income is a direct tax which is charged by the government of the country to the income of the individuals, organizations, and companies. The income tax rates are predefined and is charged accordingly. To determine: The income tax and net investment income tax liability assuming taxable income include $55,000 long-term capital gain that is taxed at preferential rate. Total taxable income = $450,000 Long-term capital gain = $55,000 The calculation of income tax and net investment income tax liability is as follows: Particulars Amount ($) Calculation Taxable income 450,000 Preferentially taxed income (55,000) Income taxed at ordinary rates 395,000 Tax on income taxed at ordinary rates 113,443.50 $46,628.50 + (($395,000-$204,100) 35%) Tax on preferentially taxed income 9,022.50 (working note 1) Income tax liability 122,466 Net investment income tax 2,090 ($55,0003.8%) Total income liability 124,556 Working note 1: The calculation of tax on preferentially taxed income is calculated as follows: Particular working Amount ($) Total taxable income 450,000 Less: income above $434,550 (434,550) Taxable at 20% 15,450 Preferentially taxed income 55,000 Less: income taxable at 20% (15,450) Income taxable at 15% 39,550 Income taxable at 20% ($15,45020%) 3,090 Income taxable at 15% ($39,55015%) 5,932.50 Tax on preferentially taxed income 9,022.50 d) Introduction: The income is a direct tax which is charged by the government of the country to the income of the individuals, organizations, and companies. The income tax rates are predefined and is charged accordingly. To determine: The income tax and net investment income tax liability with the given assumptions. Total taxable income = $195,000 Long-term capital gain = $50,000 Modified AGI = $210,000 The calculation of income tax and net investment income tax liability is as follows: Particulars Amount ($) Calculation Taxable income 195,000 Preferentially taxed income (50,000) Income taxed at ordinary rates 145,000 Tax on income taxed at ordinary rates 28,974.50 $14,382.50 + (($145,000-$84,200) 24%) Tax on preferentially taxed income 7,500 (Working note 1) Income tax liability 36,474.50 Net investment income tax 380 ($10,0003.8%) Total income liability 36,854.50 Total AGI = $210,000 Income above $200,000 = $10,000 Net investment income tax is applied on AGI over $200,000 at 3.8%. Therefore, it will be applied on $10,000 in the given case. Working note 1: The calculation of tax on preferentially taxed income is calculated as follows: Particular working Amount ($) Total taxable income 195,000 Less: income above $434,550 (0) Taxable at 20% 0 Preferentially taxed income 50,000 Less: income taxable at 20% (0) Income taxable at 15% 50,000 Income taxable at 20% 0 Income taxable at 15% ($50,000*15%) 7,500 Tax on preferentially taxed income 7,500

Solution Summary: The author explains that income is a direct tax which is charged by the government of the country to the income of individuals, organizations, and companies.

McGraw-Hill's Taxation of Individuals and Business Entities 2020 Edition

McGraw-Hill's Taxation of Individuals and Business Entities 2020 Edition

11th Edition

ISBN: 9781260432466

Author: SPILKER, Brian

Publisher: MCGRAW-HILL HIGHER EDUCATION

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