Financial Statements, Cash Flow, and Taxes: 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 deductions. In 2018, the personal exemption is for taxpayers and their dependents is zero. A capital gain (loss) is the profit (loss) from the sale of a capital asset for more (less) than its purchase price. In 2018, for most taxpayers a-Select- capital gain is taxed at a maximum rate of 15%, while a -Select- capital gain is taxed as ordinary income [for high- income taxpayers the tax rate on long-term capital gains is 20% ]. -Select- income consists of dividend and interest income. Interest income (except interest on state and local government debt which is exempt from federal taxes) is taxed as [-Select- while dividends are taxed at the same rate as long-term -Select- Generally, interest payments are not tax deductible for individuals except for interest on individuals and married couples filing jointly. -Select- within certain limits. Projected 2018 tax rate schedules are shown for single Over the years, Congress has frequently adjusted the tax code for individuals to promote certain activities. For example, Individual Retirement Accounts (IRAS) have encouraged individuals to save more for retirement. There are two main types of IRAs: Traditional IRAs and Roth IRAS. -Select- IRAS are individual retirement arrangements in which qualified contributions are tax deductible and income and capital gains on investments within the account are not taxed until the money is withdrawn after age 59 1. [-Select- IRAS are individual retirement arrangements in which contributions are not tax deductible but the future income and capital gains within these accounts are not taxed if the money is withdrawn after age 59 %. As a rough rule of thumb, [-Select- IRAs are more attractive for those individuals who believe that their tax rates will increase over time. 2018 Individual Tax Rates Single Individuals Plus This Percentage on the Excess over the Base (Marginal Rate) 10.0% 12.0 22.0 24.0 32.0 35.0 37.0 Married Couples Filing Joint Returns Plus This Percentage on the Excess over the Base (Marginal Rate) 10.0% 12.0 22.0 24.0 32.0 35.0 37.0 You Pay This If Your Taxable Amount on the Base of the Bracket Income Is Up to $9,525 $0 $9,525 $38,700 952.50 $38,700 $82,500 4,453.50 $82,500 $157,500 14,089.50 $157,500 $200,000 32,089.50 $200,000 $500,000 45,689.50 Over $500,000 150,689.50 Standard deduction for individual: $12,000 If Your Taxable Income Is Up to $19,050 $19,050 $77,400 $77,400 $165,000 $165,000 $315,000 $315,000 - $400,000 $400,000 $600,000 Over $600,000 You Pay This Amount on the Base of the Bracket $0 1,905.00 8,907.00 28,179.00 64,179.00 91,379.00 161,379.00 Average Tax Rate at Top of Bracket 10.0% 11.5 17.1 20.4 22.8 30.1 37.0 Average Tax Rate at Top of Bracket 10.0% 11.5 17.1 20.4 22.8 26.9 37.0 Standard deduction for married couples filing jointly: $24,000 Quantitative Problem: Jenna is a single taxpayer. During 2018, she earned wages of $121,000. She doesn't itemize deductions, so she will take the standard deduction to calculate 2018 taxable income. In addition, during the year she sold common stock that she had owned for five years for a net profit of $4,900. How much does Jenna owe to the IRS for taxes? Do not round intermediate calculations. Round your answer to the nearest cent. $ Corporate Corporations earn most of their income from operations; however, they may also receive interest and dividend income. -Select- v income is taxed as ordinary income; however, -Select- income is taxed more favorably. 50% of -Select- received is excluded from taxable income, while the remaining 50% is taxed at the ordinary tax rate. For businesses, -Select- payments are regarded as an expense so they are tax deductible; however, -Select- payments are not tax deductible. Consequently, our tax system encourages -Select- financing over [-Select- financing. Depreciation expense is tax deductible, so the larger the depreciation, the [-Select- the taxable income, the [-Select- the taxes, and the -Select- the firm's operating cash flow. Quantitative Problem: Andrews Corporation has income from operations of $238,000. In addition, it received interest income of $23,800 and received dividend income of $29,400 from another corporation. Finally, it paid $10,900 of interest income to its bondholders and paid $41,000 of dividends to its common stockholders. The firm's federal tax rate is 21%. What is the firm's federal income tax? Do not round intermediate calculations. Round your answer to the nearest cent