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. Individual Individuals pay taxes on wages, on investment income, and on the profits of proprietorships and partnerships. Taxable income is defined as gross income less a set of exemptions and deductions. In 2013, the personal exemption is $3,900 per person. A capital gain (loss) is the profit (loss) from the sale of a capital asset for more (less) than its purchase price. capital gain is taxed at a maximum rate of 15%, while a short-term In 2013, for most taxpayers a long-term :O :O capital gain is taxed as ordinary income [For single taxpayers with incomes over $400,000 and married taxpayers filing jointly with incomes over $450,000, the maximum tax rate on long-term capital gains has increased to 20%.]. income consists of dividend and interest income. Interest income (except interest on state and local government debt which is exempt from federal taxes) is Investment taxed as ordinary Income while dividends are taxed at the same rate as long-term Generally, interest payments are not tax deductible for capital gains home mortgages : O within certain limits. Projected 2013 tax rate schedules are shown for single individuals and married couples filing jointly. individuals except for interest on 2013 Individual Tax Rates Single Individuals It Pays This Plus This Percentage Average Tax on the Excess over the Rate at If a Corporation's Amount on the Base (Marginal Rate) Taxable Income Is Base of the Bracket Top of Bracket Up to $8,925 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 $400,0000 39.6 116,163.75 39.6 Standard deduction for individual: $6,100 Married Couples Filing Joint Returns It Pays This Plus This Percentage Average Tax on the Excess over the Rate at If a Corporation's Amount on the Taxable Income Is Base of the Bracket Base (Marginal Rate) 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 $102,000. 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 $6,200. How much does Jenna owe to the IRS for taxes? Round your intermediated and final answers to the nearest cent. 20,789.25 'Hide Feedback Partially Correct " Check My Work Feedback Review the definition of taxable income. Identify the relevant standard deduction and personal exemption amounts in order to calculate taxable income. Review the 2013 individual tax schedule and correctly use it to calculate taxes on ordinary income. Don't forget to calculate the tax on capital gains and include it in the amount of federal taxes owed. Corporate Corporations earn most of their income from operations; however, they may also receive interest and dividend income. income is taxed as ordinary income; Interest however, dividend : income is taxed more favorably. 70% of :O received is excluded from taxable income, while the remaining 30% is taxed at the ordinary dividends tax rate. For businesses, Interest payments are regarded as an expense so they are tax deductible; however, dividend : payments are not tax deductible, financing over equity Consequently, our tax system encourages financing. Depreciation expense is tax deductible, so the larger the depreciation, the debt the taxable income, the lower the taxes, and the higher O the firm's operating cash flow. The projected 2013 tax rate schedule for corporations : lower is shown below. 2013 Corporate Tax Rates It Pays This Plus This Percentage Average Tax on the Excess over the If a Corporation's Amount on the Rate at Taxable Income Is Base of the Bracket Base (Marginal Rate) 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 $258,000. In addition, it received interest income of $25,800 and received dividend income of $31,800 from another corporation. Finally, it paid $11,000 of interest income to its bondholders and paid $45,400 of dividends to its common stockholders. Using the 2013 corporate tax schedule, what is the firm's federal income tax? Round your intermediated and final answers to the nearest cent. 126,480