Economics

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Terri Poe

H2

1.Thomas has the following tax information. What amount would Thomas report as taxable income? o gross salary $41780
o dividend income $80
o
o interest earnings $225
o
o
1. Using the tax table, determine the amount of taxes for the following situations. o A head of household with taxable income of $26210 3396
o A single person with taxable income of $26888
3654
o A married person filing a separate return with taxable income of $26272 3564
1. Would you prefer a fully taxable investment earning 10.7% or a tax-exempt investment earning 8.1%.  Why?  Assume a 28% tax rate.

Example 5000.00 @10.7% (1yr investment) = $5350.00 with interest of $350.00 with a 28% tax rate TAXES = $98.00 on a fully taxable investment earning leaving $5341.00 5000.00 @ 8.1% yields 40.50 of interest in 1 yr TOTAL 5040.50 remaining dollars Tax exempt So I would choose the fully taxable option to get more money. You only pay on the money you earn as interest.

2. Elaine prepares her own income tax return each year.  A tax preparer would charge her $60 for this service.  Over a period of 10 years, how much does Elaine gain from preparing her own tax return?  Assume she can earn 3% on her savings.

$60.00 per yr X 10 yrs = $600.00 savings
Investment chart
1st year $60 @3% = $1.80 interest =$ 61.80
2nd yr $61.80 @3% = $1.85 interest= $ 63.65
3rd yr $63.65 @ 3% = $1.91 interest =$65.56
4th yr $65.56 @3%=$1.97 interest =$67.53
5th yr $67.53 @3% = $2.03 interest = $69.56
6th yr $69.56 @3%=$2.09 interest = $71.65
7th yr $71.65 @ 3%= $2.15 interest= $73.80
8th yr $73.80 @ 3%= $2.21 interest = $76.01
9th yr $76.01 @ 3%=$2.28 interest = $78.29
10th yr $78.29 @ 3%=$2.35 interest = $80.64
Her investment was $600.00 + $80.64 interest for ten years = return $680.64. That is a savings of $80.64 in...
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