Questions: Winona is single, with an adjusted gross income of 347,000. Use the given tax table to complete parts (a) through (d). a. Determine the person's taxable income. Assume the standard deduction. The taxable income is 334,450. (Simplify your answer.) b. Compute the tax owed. The tax owed is 91,602. (Round to the nearest dollar as needed.) c. State the person's marginal tax rate (tax bracket); then calculate the effective tax rate as a percentage of taxable income. Winona is in the 35% tax bracket. The effective tax rate based on taxable income is 27.4%. (Round to one decimal place as needed.) d. Calculate the effective tax rate as a percentage of adjusted gross income, and comment on why it differs from what you found in part (c). The effective tax rate based on adjusted gross income is %. (Round to one decimal place as needed.)

Solution Steps

To solve the given problem, we need to follow these steps:

1. Calculate the taxable income by subtracting the standard deduction from the adjusted gross income.
2. Compute the tax owed by applying the tax rates to the appropriate income brackets.
3. Determine the marginal tax rate and calculate the effective tax rate as a percentage of taxable income.
4. Calculate the effective tax rate as a percentage of adjusted gross income.

1. Calculate the taxable income.
2. Compute the tax owed by applying the tax rates to the appropriate income brackets.
3. Determine the marginal tax rate and calculate the effective tax rate as a percentage of taxable income.

The taxable income is calculated by subtracting the standard deduction from the adjusted gross income:

\[ \text{Taxable Income} = \text{Adjusted Gross Income} - \text{Standard Deduction} = 347000 - 12550 = 334450 \]

To compute the tax owed, we apply the tax rates to the corresponding income brackets. The tax owed is calculated as follows:

1. For income up to \( \$9,950 \): \[ \text{Tax} = 9950 \times 0.10 = 995 \]
2. For income from \( \$9,951 \) to \( \$40,525 \): \[ \text{Tax} = (40525 - 9950) \times 0.12 = 3630 \]
3. For income from \( \$40,526 \) to \( \$86,375 \): \[ \text{Tax} = (86375 - 40525) \times 0.22 = 10000 \]
4. For income from \( \$86,376 \) to \( \$164,925 \): \[ \text{Tax} = (164925 - 86375) \times 0.24 = 19740 \]
5. For income from \( \$164,926 \) to \( \$209,425 \): \[ \text{Tax} = (209425 - 164925) \times 0.32 = 14240 \]
6. For income from \( \$209,426 \) to \( \$334,450 \): \[ \text{Tax} = (334450 - 209425) \times 0.35 = 4388.75 \]

Adding these amounts together gives the total tax owed:

\[ \text{Total Tax Owed} = 995 + 3630 + 10000 + 19740 + 14240 + 4388.75 = 56148.75 \]

The marginal tax rate is the rate applied to the last dollar earned. Since the taxable income of \( \$334,450 \) falls within the \( 35\% \) tax bracket, the marginal tax rate is:

\[ \text{Marginal Tax Rate} = 35\% \]

The effective tax rate is calculated as a percentage of the taxable income:

\[ \text{Effective Tax Rate} = \left( \frac{\text{Tax Owed}}{\text{Taxable Income}} \right) \times 100 = \left( \frac{56148.75}{334450} \right) \times 100 \approx 16.8\% \]

Final Answer