Mary Jarvis a single individual has this situation for the year 2002: salary of $82 000; dividend

QUESTION

Mary Jarvis, a single individual, has this situation for the year 2002: salary of $82,000; dividend income of $12,000; interest on Disney bonds of $5,000;
interest on state of Florida municipal bonds of $10,000; proceeds of $22,000 from the sale of Disney stock purchased in 1985 at a cost of $9,000; and
proceeds of $22,000 from the November 2002 sale of Disney stock purchased in October 2001 at a cost of $21,000. Jarvis gets one exemption ($2,900), and she
has allowable itemized deductions of $7,100; these amounts will be deducted from her gross income to determine her taxable income.

a. What is Jarvis”s federal tax liability?

b. What are her marginal and average tax rates?

c. If she had $5,000 to invest and was offered a choice of either state of Florida bonds with a yield of 6 percent or more Disney bonds with a yield of 8
percent, which should she choose, and why?

d. At what marginal tax rate would Jarvis be indifferent in her choice between the Florida and Disney bonds?
(a) Total income of Mary = 82,000+12,000+5000+11000 (22000-9000)+2500 (10000-7500) = 112500 Itemized Deductions = 7500 Net Income =112500-7500 = 105000 Exemption = 3950 Net Taxable Income = 101050 Lets assume the tax rate is 10% (since tax rates are not available) Tax Liability = 10105 (101050*10%) (b) Marginal Tax rate can be identified from the tax table, it is the percentage at which the income is being taxed in a particular tax bracket. (c) Avg. tax

ANSWER:

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