10/10/23, 6:50 PM Chapter 3 Assignment
Chapter 3 Assignment
1. Tax terminology and filing status
What are the economics of income taxes?
Income taxes are taxes collected by federal, state, and local governments. Within the
United States, we have a defined tax structure. Answer the following questions regarding
the U.S. tax structure.
A tax structure in which additional taxable income is taxed at a higher rate is referred to as
a progressive tax structure.
The tax paid on the next dollar of taxable income is referred to as the marginal tax rate.
The overall rate at which income is taxed, determined by dividing the tax liability by the taxable
income, is referred to as the average tax rate.
In addition to understanding how the tax system is structured, knowing your individual
filing status is important because it determines deductions and other considerations that
should be taken into account when preparing your tax return.
Indicate the correct filing status for the definition provided.
A couple in which each spouse files his or her own return is called married filing
separately.
2. Calculating Taxable Income
Taxable income Rate
$0 — $9,525 10.0%
$9,526 — $38,700 12.0%
$38,701 — $82,500 22.0%
$82,501 — $157,500 24.0%
$157,501 — 32.0%
$200,000
$200,001 — 35.0%
$500,000
$500,001 or more 37%
Darnell’s Tax Scenario
Darnell is a young professional with taxable income of $118,500 as an advertising
account executive.
What is Darnell’s total tax liability? $22,729.50
What is Darnell’s top marginal tax rate? 24%
What is Darnell's average tax rate? 19.18%
Beth’s Tax Scenario
Beth is a professional with taxable income of $19,025.
What is Beth’s total tax liability? $2,092.50
What is Beth’s top marginal tax rate? 12%
What is Beth's average tax rate? 11%
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, 10/10/23, 6:50 PM Chapter 3 Assignment
What is Darnell’s top marginal tax rate? 24%
What is Darnell's average tax rate? 19.18%
Beth’s Tax Scenario
Beth is a professional with taxable income of $19,025.
What is Beth’s total tax liability? $2,092.50
What is Beth’s top marginal tax rate? 12%
What is Beth's average tax rate? 11%
3. Vocabulary - Taxable income terminology
Taxable Income Terminology
Description Term
Real Estate or Limited Partnership
This is used to offset passive income.
Expenses
Using taxable income, it is based on tax tables or tax
Tax Liability
rate schedules.
Income from savings accounts, stocks, bonds, mutual
Portfolio Income
funds, options, and futures are included in this term.
This term includes wages, salaries,
Gross Income
bonuses/commissions, and interest/dividends/alimony.
This term includes expenses that can only offset
Investment Expenses
portfolio income.
4. Vocabulary - Terminology for components of taxable income
Components to Taxable Income Terminology
Description Term
This is adjusted gross income less Steps to Taxable Income
deductions and exemptions.
This is a blanket deduction that
includes various deductible expenses Standard Deduction
normally incurred by taxpayers.
Capital Gains Tax
This is taxed as ordinary income if Categories
held less than 12 months.
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Chapter 3 Assignment
1. Tax terminology and filing status
What are the economics of income taxes?
Income taxes are taxes collected by federal, state, and local governments. Within the
United States, we have a defined tax structure. Answer the following questions regarding
the U.S. tax structure.
A tax structure in which additional taxable income is taxed at a higher rate is referred to as
a progressive tax structure.
The tax paid on the next dollar of taxable income is referred to as the marginal tax rate.
The overall rate at which income is taxed, determined by dividing the tax liability by the taxable
income, is referred to as the average tax rate.
In addition to understanding how the tax system is structured, knowing your individual
filing status is important because it determines deductions and other considerations that
should be taken into account when preparing your tax return.
Indicate the correct filing status for the definition provided.
A couple in which each spouse files his or her own return is called married filing
separately.
2. Calculating Taxable Income
Taxable income Rate
$0 — $9,525 10.0%
$9,526 — $38,700 12.0%
$38,701 — $82,500 22.0%
$82,501 — $157,500 24.0%
$157,501 — 32.0%
$200,000
$200,001 — 35.0%
$500,000
$500,001 or more 37%
Darnell’s Tax Scenario
Darnell is a young professional with taxable income of $118,500 as an advertising
account executive.
What is Darnell’s total tax liability? $22,729.50
What is Darnell’s top marginal tax rate? 24%
What is Darnell's average tax rate? 19.18%
Beth’s Tax Scenario
Beth is a professional with taxable income of $19,025.
What is Beth’s total tax liability? $2,092.50
What is Beth’s top marginal tax rate? 12%
What is Beth's average tax rate? 11%
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, 10/10/23, 6:50 PM Chapter 3 Assignment
What is Darnell’s top marginal tax rate? 24%
What is Darnell's average tax rate? 19.18%
Beth’s Tax Scenario
Beth is a professional with taxable income of $19,025.
What is Beth’s total tax liability? $2,092.50
What is Beth’s top marginal tax rate? 12%
What is Beth's average tax rate? 11%
3. Vocabulary - Taxable income terminology
Taxable Income Terminology
Description Term
Real Estate or Limited Partnership
This is used to offset passive income.
Expenses
Using taxable income, it is based on tax tables or tax
Tax Liability
rate schedules.
Income from savings accounts, stocks, bonds, mutual
Portfolio Income
funds, options, and futures are included in this term.
This term includes wages, salaries,
Gross Income
bonuses/commissions, and interest/dividends/alimony.
This term includes expenses that can only offset
Investment Expenses
portfolio income.
4. Vocabulary - Terminology for components of taxable income
Components to Taxable Income Terminology
Description Term
This is adjusted gross income less Steps to Taxable Income
deductions and exemptions.
This is a blanket deduction that
includes various deductible expenses Standard Deduction
normally incurred by taxpayers.
Capital Gains Tax
This is taxed as ordinary income if Categories
held less than 12 months.
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