Answer:
1. His tax is $37,490.
2. His average effective tax rate is 22%
3. His average tax rate is 24.93%
4. His marginal tax rate is 35%.
5. His tax liability will fall by $170
6. His tax liability will fall by $500.
Step-by-step explanation:
Note: This question is not complete. See the attached pdf file for the complete question.
The explanation of the answer is now given as follows:
1. What is his tax?
Note: See the attached excel for Mr. Hoosier's Tax Computation Based on the Tax Table in the question.
From the attached excel file, the Net tax is $37,490 which is his tax.
Therefore, his tax is $37,490.
2. His average effective tax rate
His average effective tax rate = Tax / (Taxable income + Tax exempt income) = Tax / (Taxable income +Municipal Bond interest) = $37,490 / ($150,400 + $20,000) = 0.2200, or 22%
3. His average tax rate
Average tax rate = Tax / Taxable Income = $37,490 / $150,400 = 24.93%
4. His marginal tax rate
His marginal tax rate is 35% as in the tax computation used based on the tax table.
5. Assume he discovers that he is eligible for a 500 tax deduction. How much does his tax liability fall with that addition?
Taxable income = 150400 - 500 = $149,900
Based on the tax table in the question, we have:
Tax = 8850 + (149900 - 55000) * 30% = $37,320
Reduction in tax liability = $37,490 - $37,320 =$170
Therefore, his tax liability will fall by $170
6. Now he discovers that he is eligible for a $500 tax credit. How much does his tax liability fall due to this credit?
The purpose of the tax credit is to make tax liability reduced dollar by dollar.
Therefore, if he discovers that he is eligible for a $500 tax credit, his tax liability will fall by $500.
