Question

Mr. Hoosier has gathered all these data about his finances.

Salary $159,000

Taxable interest $5,600

Municipal Bond interest $15,000

Total Itemized deductions $9,500

The personal exemption is $4700. The standardized deduction for a single filer is 5000.





Single Filer

If Taxable Income is Then tax is:

0-8000 10% of the amount over 0

8000- 35,000 800 + 15% of the amount over 8000

35000- 55,000 4850 + 20% of the amount over 35000

55000- 150,000 8850 + 30% of the amount over 55000

150000 – 200000 37350 + 35% of the amount over 150000

200000 and over 54850 + 40% of the amount over 200000



Married filing jointly:

If Taxable Income is Then tax is:

0-8000 10% of the amount over 0

8000- 35,000 800 + 18% of the amount over 8000

35000- 55,000 4850 + 22% of the amount over 35000

55000- 150,000 8850 + 35% of the amount over 55000

150000 – 200000 37350 + 37% of the amount over 150000

200000 and over 54850 + 45% of the amount over 200000



Please answer each question and you must show your work in order to get partial credit.



What is his average effective tax rate?

Answer 1

To calculate Mr. Hoosier's average effective tax rate, we need to determine his total tax liability and divide it by his taxable income.

First, we need to calculate his taxable income. We start with his salary of $159,000 and subtract his total itemized deductions of $9,500 and the personal exemption of $4,700.

Taxable Income = Salary - Total Itemized Deductions - Personal Exemption

= $159,000 - $9,500 - $4,700

= $144,800

Next, we calculate his tax liability using the tax brackets for a single filer:

$0 - $8,000: 10% of the amount over $0

Tax = 10% * $8,000 = $800

$8,000 - $35,000: $800 + 15% of the amount over $8,000

Tax = $800 + 15% * ($35,000 - $8,000) = $800 + 15% * $27,000 = $800 + $4,050 = $4,850

$35,000 - $55,000: $4,850 + 20% of the amount over $35,000

Tax = $4,850 + 20% * ($55,000 - $35,000) = $4,850 + 20% * $20,000 = $4,850 + $4,000 = $8,850

$55,000 - $144,800: $8,850 + 30% of the amount over $55,000

Tax = $8,850 + 30% * ($144,800 - $55,000) = $8,850 + 30% * $89,800 = $8,850 + $26,940 = $35,790

Now, we can calculate the average effective tax rate:

Average Effective Tax Rate = Total Tax Liability / Taxable Income

= $35,790 / $144,800

≈ 0.2469 or 24.69%

Therefore, Mr. Hoosier's average effective tax rate is approximately 24.69%.