394 Chapter 2 Evaluating Projected Cash FlowsEXERCISES 9.2
In the exercises for this section, use the 2006 tax year rates given in this section. Specifi cally:- The personal exemption allowance is $3,300 per person.
- The standard deduction is $5,150 for a single person and $10,300 for married fi ling jointly.
- The Social Security payroll tax rate is 6.2% up to $94,200.
- The Medicare payroll tax rate is 1.45% with no income limit.
- The income tax and withholding rates are given in the tables on pages 387–388 and 390.
A. Calculating Taxable Income- Suppose that Dave and Jenni are married and had gross earnings of $78,953 last year. They have two dependent
children, and did not have enough deductible expenses to bother itemizing their deductions. What is their taxable
income for the year? How many personal exemptions can they claim? - Ken earned $31,440 last year. He is single and has one dependent child. He paid $2,075 in state and local taxes last
year, and gave $775 to charity. Should he itemize or take the standard deduction? Calculate his taxable income. How
many personal exemptions can he claim? - Sal earned $61,995 last year. He is single and has no dependents. He paid $5,075 in state and local taxes, gave
$3,000 to charity, paid $5,804 in mortgage interest, and had $1,200 in deductible medical expenses. Calculate Sal’s
taxable income. How many personal exemptions can he claim? - Steve and Nancy are married and earned $43,004 last year. They have fi ve dependent children. They gave $4,000 to
charity, paid $6,305 in mortgage interest, paid $2,084 in state and local taxes, and had $3,500 in deductible medical
expenses. Find their taxable income for the year. How many personal exemptions can they claim?
B. Calculating Income Taxes- a. Calculate Dave and Jenni’s federal income tax based on the information given in Exercise 1.
b. What tax bracket are they in?
c. What percent of their taxable income do they pay in federal income taxes?
d. What percent of their gross income do they pay in federal income taxes? - a. Ken claims head-of-household status when fi ling his income taxes. Calculate his federal income tax based on the
information given in Exercise 2.
b. What tax bracket is Ken in?
c. What percent of his taxable income does he pay in federal income taxes?
d. What percent of his gross income does he pay in federal income taxes? - Calculate Sal’s federal income tax based on the information given in Exercise 3.
394 Chapter 9 Taxes