Answered Essay: What is the marginal and average tax rates based on the following scenarios?

What is the marginal and average tax rates based on the following scenarios? What can be done to reduce taxes? What did you learn from this exercise?

Scenario 1:

Filing Status: Single

Residence state: CO

Personal Income: $50,000

Long-term capital gain: $10,000

Interest Payments from a Muni Bond: $5,000

Scenario 2:

Filing Status: Married Filing Jointly

Residence state: WY

Personal Income: $125,000

Long-term capital gain: $10,000

Interest Payments from a Corporate Bond: $5,000

TABLE 4.1 Tax Rates and Brackets Single Filers Tax Bracket 10% 15% 25% 28% 33% 35% 395% The Tax Is: 10% of taxable income $907.50+ 15% of excess over $9,075 $5,081.25 + 25% of excess over $36,900 $ 18,193 + 28% of excess over $89,350 $45,353.75 + 33% ofexcess over $186,350 $ 1 17,54 1.25 + 35% of excess over $405,100 $ 1 18,188.75 + 39.6% of excess over $406,750 If Taxable Income Is: Not over $9,075 $9,075-$36,900 $36,900-$89,350 $89,350-$186,350 $186,350-$405,100 $405,100-$406,750 Over $406,750 Married Filing Joint Returns and Surviving Spouses If Taxable Income Is: Not over $18,150 $18,150-$73,800 $73,800-$148,850 $148,850-$226,850 $226,850-$405,100 $405,100-$457,600 Over $457,600 Tax Bracket 10% 15% 25% 28% 33% 35% 39.6% The Tax Is: 10% of taxable income $1 ,815 + 1 5% of excess over $ 18, 1 50 $10,162 + 25% of excess over $73,800 $28,925 + 28% of excess over $ 148,850 $50,765 + 33% of excess over $226,850 $1 09,587.50 + 35% of excess over $4051 00 $ 1 27,962.50 + 39.6% of excess over $457,600

Expert Answer

Scenario 1:

Scenario 1:
Filing Status: Single
Residence state: CO
P Personal Income 50000
L Long-term capital gain 10000
I Interest 5000
GI= (P+L+I) Adjusted Gross Income 65000
D Deductions Standard 6350
E Exemption 1 4050
TI= GI – D -E Taxable income 54600
R Regular Tax 9506.25
T Tax on Long term gains 1500
TT=R+T Total tax 11006.25
Scenario 2:
Filing Status: Married Filing Jointly
Residence state: WY
P Personal Income 125000
L Long-term capital gain 10000
I Interest 5000
GI= (P+L+I) Adjusted Gross Income 140000
D Deductions Standard 12700
E Exemption 1 4050
TI= GI – D -E Taxable income 123250
R Regular Tax 22524.5
T Tax on Long term gains 1500
TT=R+T Total tax 24024.5

It is clear that the tax rates are more relxed for filing jointly. And singles are taxed higher.

To reduce tax, its better to do some investments and claim higher exemptions, and file jointly.

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