Chapter 3 Financial Planning Exercise 1 Estimating taxable income, tax liability, and potential refund Sophia Johnson is 24 years old and single, lives in an apartment, and has no dependents. Last year she earned $35,900 as a sales assistant for Office Furniture Rentals, $2,872 of her wages were withheld for federal income taxes. In addition, she had interest income of $115. The standard deduction in 2014 was $6,200 for single. The exemption was claimed to be worth $3,950. The appropriate tax rate schedule is shown below: EXHIBIT 3.3 Sample Tax Rate Schedules Tax rates levied on personal income vary with the amount of reported taxable income and the taxpayer's filing status. 2014 Tax Rate Schedules Schedule X-If your filing status is Single If your taxable The tax is: income is: of the But not amount Over- over- over- 0 $9,075 10% $0 9,075 36,900 $907.50 + 15% 9,075 89,350 36,900 5,081.25 + 25% 18,193.75 + 28% 186,350 89,350 36,900 89,350 186,350 405,100 405,100 45,353.75 + 33% 186,350 406,750 405,100 117,541.25 + 35% 118,118.75 + 39.6% 406,750 406,750 a. Calculate her taxable income. Schedule x- your milling status is Single If your taxable The tax is: income is: of the But not amount Over- over- over- 0 $9,075 10% $0 9,075 36,900 $907.50 + 15% 9,075 36,900 89,350 5,081.25 + 25% 36,900 89,350 186,350 18,193.75 + 28% 89,350 186,350 405,100 45,353.75 + 33% 186,350 405,100 406,750 117,541.25 + 35% 405,100 406,750 118,118.75 + 39.6% 406,750 a. Calculate her taxable income. $ b. Calculate her tax liability. Round the answer to the nearest cent. Use unrounded values in later calculations. (Hint: Use the tax rate schedules given in Exhibit 3.3 to determine her tax liability.) $ c. Calculate her tax refund or tax owed. Enter tax owed, if any, as negative amount. Round the answer to the nearest cent. $ Feedback Check My Work Incorrect