Question

Suppose you graduate with an accounting degree and then become a certified public accountant. You work for a big firm, but are offered a chance to prepare tax documents for your city government as an independent contractor. The city offers to pay you a consulting fee of $10,000. When deciding whether to accept the additional work, the most important tax factor in your decision is:

Answer 1

The answer is: marginal tax rate

Step-by-step explanation:

The IRS uses tax brackets to determine how much taxes you owe. As your gross income increases and you pass to the next tax bracket, your tax rate also increases.

For example, a single filer who earns $75,000 a year will have a 22% tax rate. If his income increases to $85,000, then his tax rate will be 24%.