Problem
I. Nyla's employer recently offered all employees a retirement savings account benefit. With this benefit, Nyla can contribute a portion of her income (within limits) to her employer-sponsored profit-sharing retirement plan. These contributions will reduce her current taxable income on a tax-deferred basis. Nyla wants to contribute 10% of her current annual income of $12,000 toward the retirement account. But as a precautionary measure, she wants to know her investment's tax implication(s) before making any final decision.
i. Total income: $18,015
a. Cashier income: $12,000
b. Uber/Lyft: $6,000
c. Interest earnings (savings): $15
ii. Retirement plan contributions: $1,200
iii. Total Tax withheld: $600
iv. Standard deduction: $12,400
v. Qualified business income expenses (Uber/Lyft): $275
vi. American Opportunity tax credit (up to $2,500 per student and is available for education expenses from her first four years of higher education if her gross income is $80,000 or less)
2022 Federal Income Tax Brackets and Rates
Tax rate Single
10% $0 to $9,875
12% $9,876 to $40,125
22% $40,126 to $85,525
24% $85,526 to $163,300
1. Use the information provided above to help Nyla determine her taxable income and her tax obligation for 2022.
2. What are her 2022 marginal and average tax rates?
3. What tax strategies would be recommended to Nyla to help her reduce her tax liability or obligations?
4. Based on the information in this scenario, what new goal(s) would be added to her financial plan?
II. Nyla is in the 10% marginal tax rate, the 9% average tax rate, and her taxable income is $12,000 before receiving her annual bonus. What will the following be if she receives a year-end bonus of $1,000?
i. Tax on the bonus
ii. Average tax rate after the bonus
III. Nyla has $5,000 in medical expenses and an adjusted gross income of $10,800. If taxpayers are allowed to deduct the amount of medical expenses that exceed 10 percent of adjusted gross income, what would be the amount of the deduction Nyla can take?