Connect Chapter 4 - Problems

What would be the average tax rate for a person who paid taxes of $4,584 on a taxable income of $41,670?

Calculating Average Tax Rate [LO4-2] Average Tax Rate: 11%

Kaye Blanchard is 50 years old. She has $30,000 of adjusted gross income and $8,000 of qualified medical expenses. She will be itemizing her tax deductions this year. How much of a tax deduction will Kaye be able to deduct (assume 10% floor for deduction)?

Calculating Tax Deductions [LO4-2] Deductible Amount: $5,000

Samuel Jenkins made two investments; the first was 13 months ago and the second was two months ago. He just sold both investments and has a capital gain of $3,000 on each. If Samuel is single and has taxable income of $40,000, what will be the amount of capital gains tax on each investment? See Capital Gains table and Taxable income rate table.

Capital Gains [LO4-5] Capital Gains Tax: - Investment 1 (Held 13 months): $450 - Investment 2 (Held 2 months): $660

Would you prefer a fully taxable investment earning 8.1 percent or a tax-exempt investment earning 6.1 percent? (Assume a 28 percent tax rate.)

Comparing Taxes on Investments [LO4-5] Preferred Investment: Tax-exempt Investment 6.1%

Ross Martin arrived at the following tax information: Tax Information: -Gross salary: $56,145 -Interest earnings: $205 -Dividend income: $65 -Standard deduction: $12,000 -Itemized deductions: $11,250 -Adjustments to income: $1,200 What amount would Ross report as taxable income?

Computing Taxable Income [LO4-2] Taxable Income: $43,215

Imari Brown arrived at the following tax information: Tax Information: -Gross salary: $36,145 -Additional small business income (at 20% tax rate) $10,000 -Interest earnings: $205 -Dividend income: $65 -Standard deduction: $12,000 -Itemized deductions: $14,250 -Adjustments (subtractions) to income: $5,000 What amount would Imari report as taxable income?

Computing Taxable Income with Qualified Business Income [LO4-2] Taxable Income: $25,165

If Lola Harper had the following itemized deductions, should she use Schedule A or the standard deduction? The standard deduction for her tax situation is $12,000. Tax Deductions: -Donations to church and other charities: $6,050 -Medical and dental expenses exceeding 10 percent of adjusted gross income: $2,400 -State income tax: $4,690

Determining Tax Deductions [LO4-2] Lola Harper should use the Itemized Deductions of $13,140

Based on the following data, would Ann and Carl Wilton receive a refund or owe additional taxes? Tax Information: -Adjusted gross income: $42,686 -Standard deduction: $24,000 -Child care tax credit: $100 -Federal income tax withheld: $1,490 -Tax rate on taxable income: 10%

Determining a Refund or Taxes Owed [LO4-2] Tax Due: $279

If $4,026 was withheld during the year and taxes owed were $4,050, would the person owe an additional amount or receive a refund? What is the amount?

Determining a Tax Refund [LO4-2] Tax Due: $24

On December 30, you decide to make a $2,500 charitable donation. (Assume you itemize your deductions.) (a) If you are in the 24 percent tax bracket and you expect to itemize your deductions, how much will you save in taxes for the current year? (b) If you deposit that tax savings in a savings account for the next five years at 4 percent, what will be the future value of that account? Use Exhibit 1-A. (Round time value factor to 3 decimal places and final answer to 2 decimal places.)

Future Value of a Tax Savings [LO4-5] (a) Tax savings for the current year: $600 (b) Future Value of tax savings: $729.99

Each year, the Internal Revenue Service adjusts the value of the standard deductions based on inflation (and rounds to the nearest $50). In a recent year, if the exemption was worth $12,000 and inflation was 2.4 percent, what would be the amount of the exemption for the upcoming tax year?

Indexing Standard Deductions for Inflation [LO4-2] Upcoming Exemption: $12,288

If 400,000 people each receive an average refund of $2,450, based on an interest rate of 3 percent, what would be the lost annual income from savings on those refunds?

Opportunity Cost of Tax Refunds [LO4-2] Lost Annual Income: $29,400,000

If a person with a 24 percent tax bracket makes a deposit of $5,500 to a tax-deferred retirement account, what amount would be saved on current taxes?

Tax Deferred Retirement Benefits [LO4-5] Current Tax Savings: $1,320

Using the tax rate schedule in Exhibit 4-6, determine the amount of taxes for the following taxable income amounts: Took Picture of Exhibit 4-6

Using Federal Tax Rate Schedules [LO4-3] Federal Tax Rate Schedule: a. Married Filing Jointly: Taxable Income $50,000 - Taxes Owed: $5,619 b. Married Filing Jointly: Taxable Income $70,000 - Taxes Owed: $8,019 c. Married Filing Jointly: Taxable Income $95,000 - Taxes Owed: $12,779

Using the tax table in Exhibit 4-6, determine the amount of taxes for the following situations:

Using Federal Tax Tables [LO4-3] a. A head of household with taxable income: $75,751 - $11,219 b. A single person with taxable income: $75,052 - $12,456 c. A married person with taxable income: $75,926 - $12,643