Question 1) Faith, a single taxpayer, had the following income and deductions for the tax year 2006:
INCOME: Salary $70,000
Business income 30,000
Qualifying dividends 10,000
Tax-exempt income 20,000
Total income $130,000
Deductions: Business expenses $20,000
Itemized deductions 12,000
Personal exemption 3,400
Total deductions $35,400
a. What is Faith's taxable income and tax liability for the year?
b. What are Faith's marginal, average, and effective tax rates?
Question 2) The following information is available for Tom and Alice Horton, a married couple filing a joint return, for 2007:
Salary (earned by Tom) $100,000
Interest income 12,000
Deductible IRA contributions 8,000
Itemized deductions 11,000
Exemptions 6,800
Withholding 15,000
a. What is the amount of their gross income?
b. What is the amount of their adjusted gross income?
c. What is the amount of their taxable income?
d. What is the amount of their tax liability (gross tax)?
e. What is the amount of their tax due or (refund due)?