Income Tax
Chapter15: Choice Of Business Entity—other Considerations
Section: Chapter Questions
Problem 84IIP
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Question
Kim and Kayne have been dating for years and are now thinking about getting married. As a financially sophisticated couple, they want to think through the tax implications of their potential union.
a. Suppose Kim and Kanye both earn
,
calculate the combined tax bill that they would pay if they remain single, and compare that to the taxes they would pay if they were married and filed a joint return.
$65,000
(so their combined income is
$130,000).
Using the tax bracket information
Data table
(Click the icon here
in order to copy the contents of the data table below into a spreadsheet.)
TABLE 1.2: Federal Income Tax Rates and Brackets for Individual Returns (2018)
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Tax Rates
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Taxable Income
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Taxes
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10.0%
|
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$0 to $9,875
|
10% of taxable income
|
12.0%
|
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$9,876 to $40,125
|
$987.50, plus 12% of the amount over $9,876
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22.0%
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$40,126 to $85,525
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$4,617.50, plus 22% of the amount over $40,126
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24.0%
|
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$85,526 to $163,300
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$14,605.50, plus 24% of the amount over $85,526
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32.0%
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$163,301 to $207,350
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$33,271.50, plus 32% of the amount over $163,301
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35.0%
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$207,351 to $518,400
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$47,367.50, plus 35% of the amount over $207,351
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37.0%
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Over $518,401
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$156,235.50, plus 37% of the amount over $518,401
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TABLE 1.2: Tax Rates and Income Brackets for Joint Returns (2018)
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Taxable Income
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Tax Rates
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Joint Returns
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10%
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$0 to $19,750
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12%
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$19,751 to $80,250
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22%
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$80,251 to $171,050
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24%
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$171,051 to $326,600
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32%
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$326,601 to $414,700
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35%
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$414,701 to $622,050
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37%
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Over $622,050
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b. Now suppose that Kim and Kanye both earn
$400,000
(so their combined income is
$800,000).
Calculate the combined tax bill that they would pay if they remain single, and compare that to the taxes that they would pay if they were married and filed a joint return.c. What differences do you find in parts
(a)
and
(b)?
What is the cause of these differences?Expert Solution
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