CHAPTER 4 FINANCIAL PLANNING PROBLEMS
1.Thomas Franklin arrived at the following tax information:
Gross salary, $46,660
Interest earnings, $225
Dividend income, $80
One personal exemption, $3,400
Itemized deductions, $7,820
Adjustments to income, $1,150
What amount would Thomas report as taxable income?
2.If Lola Harper had the following itemized deductions, should she use Schedule A or the standard deduction? The standard deduction for her tax situation is $5,450.
Donations to church and other charities, $1,980
Medical and dental expenses that exceed 7.5 percent of adjusted gross income, $430
State income tax, $690
Job-related expenses that exceed 2 percent of adjusted gross income, $1,610
3.What would be the average tax rate for a person who paid taxes of $4,864.14 on a taxable income of $39,870?
4.Based on the following data, would Ann and Carl Wilton receive a refund or owe additional taxes?
Adjusted gross income, $46,186
Itemized deductions, $11,420
Child care tax credit, $80
Federal income tax withheld, $4,784
Amount for personal exemptions, $6,800
Average tax rate on taxable income, 15%
5.Each year, the Internal Revenue Service adjusts the value of an exemption based on inflation (and rounded to the nearest $50). In a recent year, if the exemption was worth $3,100 and inflation was 4.7 percent, what would be the amount of the exemption for the upcoming tax year?
6.If $3,432 was withheld during the year and taxes owed were $3,316, would the person owe an additional amount or receive a refund? What is the amount?
7. If 400,000 people each receive an average refund of $1,900, based on an interest rate of 4 percent, what would be the lost annual income from savings on those refunds?
8.Which 1040 form should each of the following individuals use?
a.A high school student with an after-school job and interest earnings of $480 from savings accounts.
b.A college student who, due to ownership of property, is able to itemize deductions rather than take the standard deduction.
c.A young entry-level worker with no dependents and income only from salary.
9.Using the tax tables in the PowerPoint presentation (The Progressive Nature of the Federal Income Tax 2010), determine the amount of taxes for the following situations:
a.A single person with taxable income of $26,888.
c.A married person with taxable income of $26,272).
10.Would you prefer a fully taxable investment earning 10.7 percent or a tax-exempt investment earning 8.1 percent? Why? (Assume a 28 percent tax rate.)
11.On December 30, you decide to make a $1,000 charitable donation. If you are in a 28 percent tax bracket, how much would you save in taxes for the current year? If that tax savings was deposited in a savings account for the next five years at 6 percent, what would be the future value of that account?
12. If a person with a 30 percent tax bracket makes a deposit of $4,000 to a tax deferred retirement account, what amount would be saved on current taxes?