• You must use the 2016 tax rates and brackets to calculate tax liability

1. Please match up the following items with their definition:

Item
a.) Marginal Tax Rate
b.) Taxes
c.) Effective Tax Rate
d.) Average Tax Rate

Definition
1. tax rate that applies to the next additional increment of taxpayer’s income
2. taxpayer’s average rate of tax on each dollar of total income
3. payment required by government agency that is not related to any specific benefit
4. taxpayer’s average rate of tax on each dollar of taxable income

2. Billy is 20 years old and a full time college student at UMass Dartmouth. Billy lived with his parents in Westport during the year and commuted to school. Billy works part-time at Target and earned $5,500 during the year which he gave to his parents to help with the cost of school. The total cost of Billy’s support for the year was $14,000.
Can Billy’s parents claim him as a dependent? Why?

3. Cindy is an automotive mechanic and owns her own garage, Cindy’s Auto Repair. John needs his brakes replaced but does not have cash to pay for the repairs. He spent all of his money, $500, on two tickets to the One Direction concert in Boston. Cindy loves One Direction and agrees to do the repairs in exchange for the tickets and for a bag of gourmet cookies (valued at $10).
Does this exchange result in taxable income for Cindy? If so, how much?

4. Calculate the tax liability for the following taxpayers.
a.) Jaime; Single; taxable income: $60,000
b.) Mary and Katie; Married Filing Jointly; taxable income: $137,000
c.) Barbara; Head of Household; taxable income: $48,000

5. Peter is single with no dependents. In 2016, the following occurred: Peter graduated from law school and got a job as an attorney; he earned $40,000 during the year. Peter’s mother gave him a gift of $10,000 for graduating law school and passing the bar exam. Peter had some savings in his local credit union which earned $75 of interest during the year. Now that Peter has graduated, he had to start paying back his student loans; Peter paid $600 in Qualified Student Loan interest. Peter has no itemized expenses and takes the standard deduction.
Based on the facts, answer the following questions:

a.) What is Peter’s Gross Income?
b.) What is Peter’s Total Income?
c.) What is Peter’s Adjusted Gross Income?
d.) What is Peter’s Taxable Income?
e.) What is Peter’s Tax Liability?
f.) What is Peter’s Effective Tax Rate?
g.) What is Peter’s Average Tax Rate?
h.) What is Peter’s Marginal Tax Rate?

6. Robin, who is single, had long-term capital gains totaling $2,000 in 2016. Robin’s marginal ordinary income tax rate is 25%. What is her preferential (capital gains) tax rate on her long-term capital gains?

7. Explain both excluded and deferred income. Give 2 examples of each

• You must use the 2016 tax rates and brackets to calculate tax lia...