Suppose that Eric is preparing to file his taxes. He is single and currently lives in Philadelphia. Eric earned $60,000 in taxable income in 2022. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2022. On Annual Taxable Income... Up to $10,275 From $10,275 to $41,775 From $41,775 to $89,075 From $89,075 to $170,050 From $170,050 to $215,950 From $215,950 to $539,900 Over $539,900 The Tax Rate Is... (Percent) 10.0 12.0 22.0 24.0 32.0 35.0 37.0 Based on the IRS table, Eric calculates that his marginal tax rate is 22% Eric calculates that he owes $4,807.50 in income taxes for 2022. Eric then calculates that his average tax rate is 18% when his annual taxable income is $60,000. based on the annual income level and the amount of taxes he owes for 2022. After figuring out what he owes in taxes in 2022, Eric decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $4,000 of taxable income from the federal government. (Hint: Sheltering The maximum amount that Eric is willing to pay to learn this strategy and reduce his taxable income by $4,000 is $880 some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in taxable income and shelters $10,000 pays income tax on only $40,000.)
Suppose that Eric is preparing to file his taxes. He is single and currently lives in Philadelphia. Eric earned $60,000 in taxable income in 2022. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2022. On Annual Taxable Income... Up to $10,275 From $10,275 to $41,775 From $41,775 to $89,075 From $89,075 to $170,050 From $170,050 to $215,950 From $215,950 to $539,900 Over $539,900 The Tax Rate Is... (Percent) 10.0 12.0 22.0 24.0 32.0 35.0 37.0 Based on the IRS table, Eric calculates that his marginal tax rate is 22% Eric calculates that he owes $4,807.50 in income taxes for 2022. Eric then calculates that his average tax rate is 18% when his annual taxable income is $60,000. based on the annual income level and the amount of taxes he owes for 2022. After figuring out what he owes in taxes in 2022, Eric decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $4,000 of taxable income from the federal government. (Hint: Sheltering The maximum amount that Eric is willing to pay to learn this strategy and reduce his taxable income by $4,000 is $880 some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in taxable income and shelters $10,000 pays income tax on only $40,000.)
Chapter2: Income Tax Concepts
Section: Chapter Questions
Problem 35P
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Transcribed Image Text:Suppose that Eric is preparing to file his taxes. He is single and currently lives in Philadelphia. Eric earned $60,000 in taxable income in 2022. He
reviews the following table, which shows the IRS tax rates for a single taxpayer in 2022.
On Annual Taxable Income...
Up to $10,275
From $10,275 to $41,775
From $41,775 to $89,075
From $89,075 to $170,050
From $170,050 to $215,950
From $215,950 to $539,900
Over $539,900
The Tax Rate Is...
(Percent)
10.0
12.0
22.0
24.0
32.0
35.0
37.0
Based on the IRS table, Eric calculates that his marginal tax rate is 22%
Eric calculates that he owes $4,807.50 in income taxes for 2022.
Eric then calculates that his average tax rate is 18%
when his annual taxable income is $60,000.
based on the annual income level and the amount of taxes he owes for 2022.
After figuring out what he owes in taxes in 2022, Eric decides to ask an accountant for tax advice. The accountant claims that he has found a legal
way to shelter $4,000 of taxable income from the federal government.
(Hint: Sheltering
The maximum amount that Eric is willing to pay to learn this strategy and reduce his taxable income by $4,000 is $880
some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in taxable income
and shelters $10,000 pays income tax on only $40,000.)
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