(a) The marginal tax rate on their income with an additional $100,000 taxable income is 29.35 percent.
(b) if they report an additional $100,000 in deductions, their marginal rate will be 22.86 percent.
Given that,
Taxable income = $150,000
Interest from municipal bonds = $40,000
Additional taxable income = $100,000
To calculate total taxable income is as follows:
Total taxable income = Taxable income + Additional taxable income
= $150,000 + $100,000
= $250,000
Jorge and Anita will owe $29,465.50 in federal income tax this year, computed as follows:
$29,465.50 = $28,457.50 + 28%($150,000 - $146,400)).
Jorge and Anita's marginal tax rate on the additional $100,000 taxable income is 29.35 percent.
[tex]\bold {Marginal\; Tax \;Rate = \frac{\Delta Tax}{\Delta Taxable\;Income} = \frac{(\$58,813\;-\; \$29,465.50)}{(\$250,000\; -\;\$150,000)} =\frac{0.2935}{100} = 29.35\%}[/tex]
Instead, if Jorge and Anita had an additional $100,000 in tax deductions, their marginal tax rate would be 22.86 percent.
[tex]\bold {Marginal\; Tax \;Rate = \frac{\Delta Tax}{\Delta Taxable\;Income} = \frac{(\$6,607.50\;-\; \$29,465.50)}{(\$50,000\; -\;\$150,000)} =\frac{0.2286}{100} = 22.86\%}[/tex]
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