Question

Leonardo, who is married but files separately, earns $90,000 of taxable income. He also has $8,750 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. What is Leonardo and Theresa's effective tax rate for year 2018 (rounded)? (Use tax rate schedule)

Answer 1

Answer: 17.56%

Explanation:

Given that,

Leonardo taxable income = $90,000

Tulsa bonds = $8,750

Theresa taxable income = $50,000

Computation of Leonardo's Tax:

According to the tax rate schedule,

Total Tax = Tax + 24% of taxable income over $82,500

                = $14,089.50 + 24% × $7,500

                = $14,089.50 + $1,800

                = $15,889.5

Computation of Theresa's Tax:

According to the tax rate schedule,

Total Tax = Tax + 22% of taxable income over $38,700

                = $4453.50 + 22% × $11,300

                = $4453.50 + $2,486

                = $6939.5

Total tax on Leonardo's income and Theresa's income:

= $15,889.5 + $6939.5

= $22,829

Effective tax rate = $\frac{Total\ Tax}{Total\ Taxable\ Income}\times100$

                              = $\frac{22,829}{130,000}\times100$

                              = 17.56%