50.1K

Verified Solution

Link Copied!

A) IN THIS PROBLEM WHERE AND HOW DO I FIND RELEVANT STANDARD DEDUCTION FOR AN INDIVIDUAL AND THE PERSONAL EXEMPTION?

B) FOR THE FOURTH STEP IN THE PROBLEM, WHY DOES THE CAPITAL GAINS STEP USE 15% AND HOW DO I FIND THAT 15%?

2013 Individual Tax Rates Single Individuals It Pays This Plus This Percentage Average Tax If a Corporation's Amount on the on the Excess over the Rate at Taxable Income Is Base of the Bracket Base (Marginal Rate) Top of Bracket 10.0% Up to $8,925 $0 10.0% $8,925 - $36,250 892.50 15.0 13.8 4,991.25 $36,250 $87,850 25.0 20.4 17,891.2.5 $87,850 $183,250 28.0 24.3 44,603.2.5 29.0 $183,250 - $398,350 33.0 115,586.25 29.0 $398,350 $400,000 35.0 Over $400,000 116,163.75 39.6 39.6 Standard deduction for individual: $6,100 Married Couples Filing Joint Returns It Pays This Plus This Percentage Average Tax If a Corporation's Amount on the on the Excess over the Rate at Taxable Income Is Base of the Bracket Base (Marginal Rate) Top of Bracket 10.0% 10.0% Up to $17,850 $0 $17,850 $72,500 1,785.00 15.0 13.8 19.4 $72,500 $146,400 9,982.50 25.0 28,457.50 $146,400 - $223,050 28.0 22.4 27.1 $223,050 - $398,350 49,919.50 33.0 107,768.50 28.0 $398,350 $450,000 35.0 Over $450,000 125,846.00 39.6 39.6 Standard deduction for married couples filing jointly: $12,200 Quantitative Problem: Jenna is a single taxpayer with no dependents so she qualifies for one personal exemption. During 2013, she earned wages of $134,000. She doesn't itemize deductions, so she will take the standard deduction and her personal exemption to calculate 2013 taxable income. In addition, during the year she sold common stock that she had owned for five years for a net profit of $5,700. How much does Jenna owe to the IRS for taxes? Round your intermediated and final answers to the nearest cent. First, determine that the relevant standard deduction for an individual is $6,100 and the personal exemption is $3,900. Second, calculate taxable income: Wages $134,000 (6,100) Standard deduction Personal exemption (3,900) Taxable income $124,000 Third, calculate federal income tax on ordinary income using the 2013 individual income tax schedule: Tax on ordinary income-$17,891.25 + ($124,000-$87,850) 0.28 Tax on ordinary income = $17,891.25 + $10,122 = $28,013.25 Fourth, calculate the long-term capital gains tax and add it to the tax on ordinary income to obtain the total tax amount owed: Capital gains tax = $5,700 x 0.15 = $855 Total tax due $28,013.25 $855 $28,868.25

Answer & Explanation Solved by verified expert

See Answer