Question

A famous movie actress made $10 million last year. She is married and has no children, and her husband does not earn any income. Assume that she computes her taxable income using the following formula:

(taxable income) = (income) ???? (exemptions) ???? (standard deductions)

Find her taxable income, her federal income tax, and her effective federal income tax rate.

Answer 1

The answers are:

• taxable income = $10 million - $24,000 (standard deduction) = $9,976,000
• her federal income tax = $161,379 + ($9,376,000 x 37%) = $3,630,499
• effective federal income tax rate=($3,630,499 / 10,000,000) x 100 = 36.30%

Explanation:

If she is filing her 2018 income:

Her $10 million income places her in the highest tax bracket:

• she should file as married, filing jointly: $161,379 plus 37% of the amount over $600,000
• personal exemptions have been eliminated (Tax Cuts and Jobs Act)
• and the standard deductions are $24,000

taxable income = $10 million - $24,000 (standard deduction) = $9,976,000

her federal income tax = $161,379 + ($9,376,000 x 37%) = $3,630,499

effective federal income tax rate=($3,630,499 / 10,000,000) x 100 = 36.30%