Federal Income Taxes

Individuals and firms pay out a significant portion of their income as taxes, so taxes are important in both personal and corporate decisions. Our tax system is progressive.

2013 Individual Tax Rates
Single Individuals
If Your Taxable Income Is	You Pay This Amount on the Base of the Bracket	Plus This Percentage on the Excess over the Base (Marginal Rate)	Average Tax Rate at Top of Bracket
Up to $8,925	$0	10.0%	10.0%
$8,925 - $36,250	892.50	15.0	13.8
$36,250 - $87,850	4,991.25	25.0	20.4
$87,850 - $183,250	17,891.25	28.0	24.3
$183,250 - $398,350	44,603.25	33.0	29.0
$398,350 - $400,000	115,586.25	35.0	29.0
Over $400,000	116,163.75	39.6	39.6

Standard deduction for individual: $6,100

Married Couples Filing Joint Returns
If Your Taxable Income Is	You Pay This Amount on the Base of the Bracket	Plus This Percentage on the Excess over the Base (Marginal Rate)	Average Tax Rate at Top of Bracket
Up to $17,850	$0	10.0%	10.0%
$17,850 - $72,500	1,785.00	15.0	13.8
$72,500 - $146,400	9,982.50	25.0	19.4
$146,400 - $223,050	28,457.50	28.0	22.4
$223,050 - $398,350	49,919.50	33.0	27.1
$398,350 - $450,000	107,768.50	35.0	28.0
Over $450,000	125,846.00	39.6	39.6

Standard deduction for married couples filing jointly: $12,200

Quantitative Problem: Jenna is a single taxpayer with no dependents so she qualifies for one personal exemption. During 2013, she earned wages of $112,000. She doesn't itemize deductions, so she will take the standard deduction and her personal exemption to calculate 2013 taxable income. In addition, during the year she sold common stock that she had owned for five years for a net profit of $5,200. How much does Jenna owe to the IRS for taxes? Round your intermediated and final answers to the nearest cent.

Corporate

Corporations earn most of their income from operations; however, they may also receive interest and dividend income. -Select-InterestDividendCorrect 1 of Item 2 income is taxed as ordinary income; however, -Select-interestdividendCorrect 2 of Item 2income is taxed more favorably. 70% of -Select-interestdividendsCorrect 3 of Item 2 received is excluded from taxable income, while the remaining 30% is taxed at the ordinary tax rate. For businesses, -Select-interestdividendCorrect 4 of Item 2payments are regarded as an expense so they are tax deductible; however, -Select-interestdividendCorrect 5 of Item 2 payments are not tax deductible. Consequently, our tax system encourages -Select-equitydebtCorrect 6 of Item 2 financing over -Select-equitydebtCorrect 7 of Item 2 financing. Depreciation expense is tax deductible, so the larger the depreciation, the -Select-lowerhigherCorrect 8 of Item 2 the taxable income, the -Select-lowerhigherCorrect 9 of Item 2 the taxes, and the -Select-lowerhigherCorrect 10 of Item 2 the firm's operating cash flow. The projected 2013 tax rate schedule for corporations is shown below:

2013 Corporate Tax Rates
If Your Taxable Income Is	You Pay This Amount on the Base of the Bracket	Plus This Percentage on the Excess over the Base (Marginal Rate)	Average Tax Rate at Top of Bracket
Up to $50,000	$0	15.0%	15.0%
$50,000 - $75,000	7,500	25.0	18.3
$75,000 - $100,000	13,750	34.0	22.3
$100,000 - $335,000	22,250	39.0	34.0
$335,000 - $10,000,000	113,900	34.0	34.0
$10,000,000 - $15,000,000	3,400,000	35.0	34.3
$15,000,000 - $18,333,333	5,150,000	38.0	35.0
Over $18,333,333	6,416,667	35.0	35.0

Quantitative Problem: Andrews Corporation has income from operations of $249,000. In addition, it received interest income of $24,900 and received dividend income of $32,100 from another corporation. Finally, it paid $10,000 of interest income to its bondholders and paid $45,700 of dividends to its common stockholders. Using the 2013 corporate tax schedule, what is the firms federal income tax? Round your intermediated and final answers to the nearest cent.