Question

Chuck, a single taxpayer, earns $78,000 in taxable income and $13,300 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule.) Required: a. If Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income? b. What is his marginal rate if, instead, he had $40,000 of additional deductions? (For all requirements, do not round intermediate calculations. Round percentage answers to 2 decimal places.) Answer is complete but not entirely correct.

Answer 1

Chuck's marginal tax rate for additional income or deductions would depend on the updated U.S. tax rate schedule. The marginal rate is applied to the last dollar of taxable income within the pertinent income range. Actual current tax rates must be used for an accurate calculation.

Step-by-step explanation:

The marginal tax rate is the rate at which your last dollar of taxable income is taxed. To determine Chuck's marginal tax rates for the scenarios provided, we need to refer to the current U.S. tax rate schedule which is not provided in the question. However, here's a general process:

1. If Chuck earns an additional $40,000 of taxable income, his new taxable income would be $78,000 + $40,000 = $118,000. Look up this amount in the current tax rate schedule to find the applicable marginal tax rate.
2. If Chuck instead had $40,000 of additional deductions, his taxable income would decrease from $78,000 down to $38,000. Again, consult the current tax rate schedule to find the new marginal tax rate for this reduced taxable income.

The example provided with the $35,000 income sets the marginal rate at 15% because this is the highest rate applied to the last dollar earned within the ranges provided. It's important to note that the rates and income thresholds change over time, so the current tax schedule must be used for an accurate calculation.

Answer 2

The marginal tax rate is the rate at which an additional dollar of income is taxed. If Chuck earns an additional $40,000 of taxable income, his marginal tax rate would be 24%. If he had $40,000 of additional deductions, his marginal tax rate would be 12%.

Step-by-step explanation:

The marginal tax rate is the rate at which an additional dollar of income is taxed. To determine the marginal tax rate, we need to look at the tax rate schedule. In this case, Chuck's taxable income is $78,000, so we'll use the tax rate schedule to find his current marginal tax rate. If he earns an additional $40,000 of taxable income, we'll look at the tax rate applicable to that income bracket to determine his new marginal tax rate.

If Chuck earns an additional $40,000 of taxable income, his new taxable income would be $78,000 + $40,000 = $118,000. Looking at the tax rate schedule, we can see that this places him in the 24% tax bracket. Therefore, his marginal tax rate on this additional income would be 24%.

If instead Chuck had $40,000 of additional deductions, his taxable income would be reduced by that amount. Since his current taxable income is $78,000, his new taxable income would be $78,000 - $40,000 = $38,000. Looking at the tax rate schedule, we can see that this places him in the 12% tax bracket. Therefore, his marginal tax rate if he had $40,000 of additional deductions would be 12%.