Answer:
a. What is Mary’s federal tax liability?
$20,243.75
b. What is her marginal tax rate?
25%
c. What is her average tax rate?
average tax rate for ordinary income = $18,293.75 / $90,000 = 20.33%
average tax rate on all of Mary's taxable income (including long term capital gains) = $20,243.75 / $103,000 = 19.65%
Explanation:
Since the personal exemption is $4,000, I assume that this question takes place during 2015.
total ordinary income = $82,000 (salary) + $12,000 (dividend income) + $5,000 (interest income) + $2,500 (short term capital gains) = $101,500
long term capital gains = $13,000
taxable ordinary income = $101,500 - $4,000 - $7,500 = $90,000
tax liability on ordinary income = $5,156.25 + [($90,000 - $37,450) x 25%] = $18,293.75
tax liability on long term capital gains = $13,000 x 15% = $1,950
total tax liability = $20,243.75
