Margaret Considine has the following situation for the year 2015: salary of $60,000; dividend income of $10,000; interest on IBM bonds of $5,000; interest on State of Florida municipal bonds of $10,000; proceeds of $20,000 from the sale of IBM stock purchased in 2004 at a cost of $9,000; and proceeds of $22,000 from the November 2015 sale of IBM stock purchased in October 2015 at a cost of $21,000. Margaret gets one exemption ($3,950), and she has allowable itemized deductions of $6,500; these amounts will be deducted from her gross income to determine her taxable income.
a. What is Margaret’s federal tax liability for 2015?
b. What are her marginal and average tax rates?
c. If she had some money to invest and was offered a choice of either State of Florida bonds with a yield of 9 percent or more IBM bonds with a yield of 11 percent, which should she choose and why?
d. At what marginal tax rate would Margaret be indifferent in her choice between the Florida munis and the IBM bonds?