Brief Exercises

1. (LO1) Narayani is single and has taxable income in 2023 of $90,000. She is considering working as a freelance designer and will earn an additional $20,000. Disregarding self-employment tax, what is Narayanis after-tax income on the $20,000 if she is in the 24% tax bracket?

2. (LO2) Briefly describe supporting Schedules 1, 2, and 3 for Form 1040.

4. (LO4) Discuss why tax evasion is a significant issue for the federal government.

5. (LO5) What is the main purpose of GAAP and the main purpose of the tax laws?

6. (LO6) List the five main goals that policymakers attempt to achieve with the income tax system.

7. (LO7) Dexter earns wages of $88,000 in 2023. What are the total employment taxes paid on the wages?

Application Problems

1. (LO3) Calculate the tax liability for the following taxpayers in 2023: Darius is single and has taxable income of $100,000. Henry and Harriet are married and file a joint tax return. They have taxable income of $200,000. Jenny is head of household and has taxable income of $100,000.

2. (LO3) What is the after-tax income in the following situations for a single taxpayer in 2023? Taxable income received of $100,000. Taxable income received of $75,000, tax-exempt revenue received of $25,000.

3. (LO3) What is the after-tax cost in the following situations if the taxpayer has additional deductions as stated? Assume the taxpayer is in the 24% marginal tax bracket. Deductible expense paid of $35,000. Deductible expense paid of $25,000; non-deductible expense paid of $10,000.

4. (LO3) Dre owns Kratum Company and has the following revenue and expenses. Calculate the after-tax net profit (ignoring self-employment tax) for Dre who is single in 2023. Taxable revenue received $125,000 Tax-exempt revenue received $15,000 Deductible expenses paid $22,000 Non-deductible expenses paid $5,000

5. (LO3) Sanjay has the following information for 2023: Filing Status Married filing jointly Taxable Income $264,800 Total Income $290,700 Compute his marginal tax rate, average tax rate, and effective tax rate.

6. (LO3) Sarah has asked for help in determining whether she should receive her $25,000 bonus check in the current year or next year. In the current year, her marginal tax rate is 24% and she anticipates she will be in the 32% marginal tax bracket next year. What advice can you give Sarah?

8. (LO3) Kurt, married filing jointly, owns a manufacturing business and has the opportunity to invest in a transaction that will generate $200,000 before-tax cash flow and taxable income in Year 0. Calculate the after-tax cash flow using the tax table for 2023 for married filing jointly. How does your answer change if Kurt could restructure the transaction that results in before-tax cash flow and taxable income of $50,000 in Year 0, $100,000 in Year 1, and $50,000 in Year 2? Assume a discount factor of 4% and the same tax rate table as given for 2023.