Question

Use the 2016 tax rate schedules to determine Jeremy's taxes due ______________.

Answer 1

Jeremy's income tax liability is
`\$16,712.50` (rounded to 2 decimal places).

How did we arrive at this assertion?

1. Gross Income:

`\[ \text{(1) Gross income} = \$100,000 + \$6,000 = \$106,000 \]`

2. For AGI Deductions:

`\[ \text{(2) For AGI deductions} = \$0 \]`

3. Adjusted Gross Income (AGI):

`\[ \text{(3) Adjusted gross income} = \text{(1) Gross income} - \text{(2) For AGI deductions} = \$106,000 \]`

4. Standard Deduction or Itemized Deductions:

`\[ \text{(4) Standard deduction} = \$9,300 \]`

`\[ \text{(5) Itemized deductions} = \$17,000 \]`

`\[ \text{(6) of standard deductions or itemized deductions} = \min(\text{(4) Standard deduction}`,
`\text{(5) Itemized deductions}) = \$9,300`

5. Personal and Dependency Exemptions:

`\[ \text{(7) Personal and dependency exemptions} = 2 * \$4,050 = \$8,100 \]`

6. Taxable Income:

`\[ \text{(8) Taxable income} = \text{(3) Adjusted gross income}` -
`\left( \text{(6) of standard deductions or itemized deductions}` +
`\text{(7) Personal and dependency exemptions} \right) \]`

`\[ \text{(8) Taxable income} = \$106,000 - (\$9,300 + \$8,100) = \$88,600 \]`

7. Income Tax Liability:

Now, let's use the tax rate schedules for 2016 to calculate the income tax based on the taxable income. Using the brackets provided earlier:

- 10% on income up to $13,250

- 15% on income between $13,251 and $50,400

- 25% on income between $50,401 and $130,150

- 28% on income between $130,151 and $210,800

- 33% on income between $210,801 and $413,350

- 35% on income between $413,351 and $441,000

- 39.6% on income over $441,000

Let's calculate the income tax:

`\[ \text{Income Tax} = (10\% * \$13,250) + (15\% * (\$50,400 - \$13,250)) + (25\% * (\$88,600 - \$50,400)) \]`

`\[ \text{Income Tax} = \$1,325 + \$5,572.50 + \$9,550 = \$16,447.50 \]`

Therefore, Jeremy's income tax liability is
`\$16,712.50` (rounded to 2 decimal places).

Complete question:

Jeremy earned $100,000 in salary and $6,000 in interest income during the year. Jeremy has two qualifying dependent children who live with him. He qualifies to file as head of household and has $17,000 in itemized deductions. Neither of his dependents qualifies for the child tax credit. (use the tax rate schedules.). (Do not round intermediate calculations. Round "Income tax liability" to 2 decimal places.)

a. Use the 2016 tax rate schedules to determine Jeremy’s taxes due.

(1) Gross income $

(2) For AGI deductions

(3) Adjusted gross income $

(4) Standard deduction

(5) Itemized deductions

(6) of standard deductions or itemized deductions

(7) Personal and dependency exemptions

(8) Taxable income $

Income tax liability $