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Caroline is getting ready to do her taxes. She is single and lives in San Francisco. Caroline earned $250,000 in 2011. She reviews the following table which shows the IRS tax rates for a single taxpayer in 2011. On Annual Taxable Income... Up to $8,500 From $8,500 to $34,500 From $34,500 to $83,600 From $83,600 to $174,400 From $174,400 to $379,150 Over $379,150 The Tax Rate Is... (Percent) 10 15 25 28 Caroline calculates that she owes 33 35 Based on the IRS table, Caroline calculates that her marginal tax rate is in income taxes for 2011. Caroline then calculates that her average tax rate is when her annual income is $250,000. , based on the annual income level and the amount of taxes she owes for 2011. After figuring out what she owes in taxes in 2011, Caroline decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $1,000 of taxable income from the federal government. . (Hint: The maximum amount that Caroline is willing to pay to learn this strategy and reduce her taxable income by $1,000 is Sheltering some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in income and shelters $10,000 pays income tax on only $40,000.)

Caroline is getting ready to do her taxes. She is single and lives in San Francisco. Caroline earned $250,000 in 2011. She reviews the following table which shows the IRS tax rates for a single taxpayer in 2011. On Annual Taxable Income... Up to $8,500 From $8,500 to $34,500 From $34,500 to $83,600 From $83,600 to $174,400 From $174,400 to $379,150 Over $379,150 The Tax Rate Is... (Percent) 10 15 25 28 Caroline calculates that she owes 33 35 Based on the IRS table, Caroline calculates that her marginal tax rate is in income taxes for 2011. Caroline then calculates that her average tax rate is when her annual income is $250,000. , based on the annual income level and the amount of taxes she owes for 2011. After figuring out what she owes in taxes in 2011, Caroline decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $1,000 of taxable income from the federal government. . (Hint: The maximum amount that Caroline is willing to pay to learn this strategy and reduce her taxable income by $1,000 is Sheltering some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in income and shelters $10,000 pays income tax on only $40,000.)

Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter12: The Design Of The Tax System
Section: Chapter Questions
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4. Taxes paid for a given income level Caroline is getting ready to do her taxes. She is single and lives in San Francisco. Caroline earned $250,000 in 2011. She reviews the following table, which shows the IRS tax rates for a single taxpayer in 2011. On Annual Taxable Income... Up to $8,500 From $8,500 to $34,500 From $34,500 to $83,600 From $83,600 to $174,400 From $174,400 to $379,150 Over $379,150 The Tax Rate Is... (Percent) 10 15 25 28 33 35 Based on the IRS table, Caroline calculates that her marginal tax rate is Caroline calculates that she owes in income taxes for 2011. Caroline then calculates that her average tax rate is I when her annual income is $250,000. based on the annual income level and the amount of taxes she owes for 2011. After figuring out what she owes in taxes in 2011, Caroline decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $1,000 of taxable income from the federal government. The maximum amount that Caroline is willing to pay to learn this strategy and reduce her taxable income by $1,000 is (Hint: Sheltering some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in income and shelters $10,000 pays income tax on only $40,000.)
Transcribed Image Text:4. Taxes paid for a given income level Caroline is getting ready to do her taxes. She is single and lives in San Francisco. Caroline earned $250,000 in 2011. She reviews the following table, which shows the IRS tax rates for a single taxpayer in 2011. On Annual Taxable Income... Up to $8,500 From $8,500 to $34,500 From $34,500 to $83,600 From $83,600 to $174,400 From $174,400 to $379,150 Over $379,150 The Tax Rate Is... (Percent) 10 15 25 28 33 35 Based on the IRS table, Caroline calculates that her marginal tax rate is Caroline calculates that she owes in income taxes for 2011. Caroline then calculates that her average tax rate is I when her annual income is $250,000. based on the annual income level and the amount of taxes she owes for 2011. After figuring out what she owes in taxes in 2011, Caroline decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $1,000 of taxable income from the federal government. The maximum amount that Caroline is willing to pay to learn this strategy and reduce her taxable income by $1,000 is (Hint: Sheltering some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in income and shelters $10,000 pays income tax on only $40,000.)
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