Question: Instructions: Complete all calculations and answer the three questions below. Submit your solution via Canvas in Word, Excel, or Adobe Reader format. You can download
Instructions: Complete all calculations and answer the three questions below. Submit your solution via Canvas in Word, Excel, or Adobe Reader format. You can download the data in this assignment in an Excel spreadsheet here: Assignment 2 Income Tax Data.xlsx
The first table below contains relevant information about the Aguilar and Busch households for the 2020 tax year. Assume both households live in Florida and thus have no state income tax liability, but do remit state sales taxes on household purchases (reported under state and local sales taxes below):
|
| Aguilar | Busch |
| Marital status | Married | Single |
| No. of children under age 17 | 2 | 0 |
| Wages and salaries | $174,000 | $58,600 |
| Taxable interest income | $10,800 | $3,200 |
| Standard deduction | $24,800 | $12,400 |
| Itemized deductions | ||
| Mortgage interest | $16,150 | $0 |
| Property taxes | $11,700 | $0 |
| State sales taxes | $7,500 | $5,800 |
| Charitable contributions | $5,340 | $2,870 |
| Note: the child tax credit is valued at $2,000 per each child under age 17 | ||
The 2020 federal tax brackets for individual and married, filing jointly filers are reported below:
| Rate | Individual (single) | Married Filing Jointly |
| 10% | Up to $9,875 | Up to $19,750 |
| 12% | $9,876 to $40,125 | $19,751 to $80,250 |
| 22% | 40,126 to $85,525 | $80,251 to $171,050 |
| 24% | $85,526 to $163,300 | $171,050 to $326,600 |
| 32% | $163,301 to $207,350 | $326,601 to $414,700 |
| 35% | $207,351 to $518,400 | $414,701 to $622,050 |
| 37% | over $518,400 | over $622,050 |
Answer and report relevant calculations:
- What are each households 2020 federal taxable income and income tax liability if both select the standard deduction? What is their federal taxable income and income tax liability if they both itemize deductions? Keep in mind federal taxpayers can itemize no more than $10,000 of their combined property tax and other state and local tax liability under 2018 tax law.
- Assume each household only itemizes its deductions if it reduces their tax liability relative to what is owed using the standard deduction. What are each households marginal, average, and effective income tax rates for 2020?
- Based on the calculations you have done, how would you describe the vertical equity of the income tax?
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