Question
Brooke is a single and has the following situation for the year: Brook's income of $80,000;...
Brooke is a single and has the following situation for the year: Brook's income of $80,000; dividend income of $20,000; interest income of $2,000; short-term capital gain of $8,000 and long-term capital gain of 14,000. She also paid $1,000 on interest charges on her credit card. Her other total exemptions and itemized deductions is 22,000; these amounts will be deducted from her gross income to determine her taxable income. If she is files as a single individual, what is Brook's average tax rate? Use the individual tax rate provided below.
| Individual Tax Rates: Single Individual | |||
| Taxable Income | You Pay This Amount on the Base of the Bracket | Plus This Percentage on the Excess over the Base (Marginal Rate) | Average Tax Rate at the Top of Bracket |
| Up to $8925 | $0 | 10.0% | 10.0% |
| $8925-36350 | $892.50 | 15.0 | 13.8 |
| $36250-87850 | $4991.25 | 25.0 | 20.4 |
| $87850-183250 | $17891.25 | 28.0 | 24.3 |
| 183250-398350 | $44603.25 | 33.0 | 29.0 |
| $398350-400000 | $115586.25 | 35.0 | 29.0 |
| Over $400000 | $116163.75 | 39.6 | 39.6 |
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21.71%
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20.03%
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19.64%
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28.00%
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None of the above
Answers
Answer:
Correct answer is:
19.64%
Explanation:
Brooke's income = $80,000
Dividend income = $20,000
Interest income = $2,000
Short-term capital gain = $8,000
Long-term capital gain = $14,000
Gross Taxable income = 80000 + 20000 + 2000 + 8000 + 14000 = $124,000
Less: Itemized deduction = $22,000
Taxable income = 124000 - 22000 = $102,000
Long term capital gain = $14,000
Taxable as ordinary income = 102000 - 14000 = $88,000
Tax Brooke will pay = $17891.25 + (88000 - 87850) * 28% + 14000* 15%
= $20,033.25
Average tax rate = Total tax / Taxable income = 20033.25 / 102000 = 19.64%
Hence option C is correct and other options A, B, D and E are incorrect.