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 2017, the personal exemption is $4,050 per person. A capital gain (loss) is the profit (loss) from the sale of a capital asset for more (less) than its purchase price. In 2017, for most taxpayers a long-term capital gain is taxed at a maximum rate of 15%, while a short-term capital gain is taxed as ordinary income [For taxpayers in the 39.6% tax bracket, the tax rate on long-term capital gains is 20%.]. Investment 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 ordinary income, while dividends are taxed at the same rate as long-term capital gains . Generally, interest payments are not tax deductible for individuals except for interest on home mortgages within certain limits. Projected 2017 tax rate schedules are shown for single individuals and married couples filing jointly. 2017 Individual Tax Rates Single Individuals 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 $0 If Your Taxable Income Is Up to $9,325 $9,325 - $37,950 $37,950 - $91,900 $91,900 - $191,650 $191,650 - $416,700 $416,700 - $418,400 Over $418,400 932.50 5,226.25 18,713.75 46,643.75 120,910.25 121,505.25 10.0% 15.0 25.0 28.0 33.0 35.0 10.0% 13.8 20.4 24.3 29.0 29.0 39.6 39.6 Standard deduction for individual: $6,350 Standard deduction for individual: $6,350 Plus This Percentage on the Excess over the Base (Marginal Rate) Average Tax Rate at Top of Bracket Married couples Filing Joint Returns You Pay This Amount on the If Your Taxable Base of the Bracket Income Is Up to $18,650 $0 $18,650 - $75,900 1,865.00 $75,900 - $153,100 10,452.50 $153,100 - $233,350 29,752.50 $233,350 - $416,700 52,222.50 $416,700 - $470,700 112,728.00 Over $470,700 131,628.00 10.0% 15.0 25.0 28.0 10.0% 13.8 19.4 22.4 27.1 28.0 39.6 33.0 35.0 39.6 Standard deduction for married couples filing jointly: $12,700 Quantitative Problem: Jenna is a single taxpayer with no dependents so she qualifies for one personal exemption. During 2017, she earned wages of $129,000. She doesn't itemize deductions, so she will take the standard deduction and her personal exemption to calculate 2017 taxable income. In addition, during the year she sold common stock that she had owned for five years for a net profit of $7,800. 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- income is taxed as ordinary income; however, -Select- income is taxed more favorably. 70% of -Select- received is excluded from taxable income, while the remaining 30% 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. The projected 2017 tax rate schedule for corporations is shown below. If a Corporation's Taxable Income Is Up to $50,000 $50,000 - $75,000 $75,000 - $100,000 $100,000 - $335,000 $335,000 - $10,000,000 $10,000,000 - $15,000,000 $15,000,000 - $18,333,333 Over $18,333,333 2017 Corporate Tax Rates It Pays This Plus This Percentage Amount on the on the Excess over the Base of the Bracket Base (Marginal Rate) $0 15.0% 7,500 25.0 13,750 34.0 22,250 39.0 113,900 34.0 3,400,000 35.0 5,150,000 38.0 6,416,667 35.0 Average Tax Rate at Top of Bracket 15.0% 18.3 22.3 34.0 34.0 34.3 35.0 35.0 Quantitative Problem: Andrews Corporation has income from operations of $244,000. In addition, it received interest income of $24,400 and received dividend income of $33,000 from another corporation. Finally, it paid $10,800 of interest income to its bondholders and paid $43,600 of dividends to its common stockholders. Using the 2017 corporate tax schedule, what is the firm's federal income tax? Round your intermediate and final answers to the nearest cent. 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 2017, the personal exemption is $4,050 per person. A capital gain (loss) is the profit (loss) from the sale of a capital asset for more (less) than its purchase price. In 2017, for most taxpayers a long-term capital gain is taxed at a maximum rate of 15%, while a short-term capital gain is taxed as ordinary income [For taxpayers in the 39.6% tax bracket, the tax rate on long-term capital gains is 20%.]. Investment 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 ordinary income, while dividends are taxed at the same rate as long-term capital gains . Generally, interest payments are not tax deductible for individuals except for interest on home mortgages within certain limits. Projected 2017 tax rate schedules are shown for single individuals and married couples filing jointly. 2017 Individual Tax Rates Single Individuals 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 $0 If Your Taxable Income Is Up to $9,325 $9,325 - $37,950 $37,950 - $91,900 $91,900 - $191,650 $191,650 - $416,700 $416,700 - $418,400 Over $418,400 932.50 5,226.25 18,713.75 46,643.75 120,910.25 121,505.25 10.0% 15.0 25.0 28.0 33.0 35.0 10.0% 13.8 20.4 24.3 29.0 29.0 39.6 39.6 Standard deduction for individual: $6,350 Standard deduction for individual: $6,350 Plus This Percentage on the Excess over the Base (Marginal Rate) Average Tax Rate at Top of Bracket Married couples Filing Joint Returns You Pay This Amount on the If Your Taxable Base of the Bracket Income Is Up to $18,650 $0 $18,650 - $75,900 1,865.00 $75,900 - $153,100 10,452.50 $153,100 - $233,350 29,752.50 $233,350 - $416,700 52,222.50 $416,700 - $470,700 112,728.00 Over $470,700 131,628.00 10.0% 15.0 25.0 28.0 10.0% 13.8 19.4 22.4 27.1 28.0 39.6 33.0 35.0 39.6 Standard deduction for married couples filing jointly: $12,700 Quantitative Problem: Jenna is a single taxpayer with no dependents so she qualifies for one personal exemption. During 2017, she earned wages of $129,000. She doesn't itemize deductions, so she will take the standard deduction and her personal exemption to calculate 2017 taxable income. In addition, during the year she sold common stock that she had owned for five years for a net profit of $7,800. 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- income is taxed as ordinary income; however, -Select- income is taxed more favorably. 70% of -Select- received is excluded from taxable income, while the remaining 30% 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. The projected 2017 tax rate schedule for corporations is shown below. If a Corporation's Taxable Income Is Up to $50,000 $50,000 - $75,000 $75,000 - $100,000 $100,000 - $335,000 $335,000 - $10,000,000 $10,000,000 - $15,000,000 $15,000,000 - $18,333,333 Over $18,333,333 2017 Corporate Tax Rates It Pays This Plus This Percentage Amount on the on the Excess over the Base of the Bracket Base (Marginal Rate) $0 15.0% 7,500 25.0 13,750 34.0 22,250 39.0 113,900 34.0 3,400,000 35.0 5,150,000 38.0 6,416,667 35.0 Average Tax Rate at Top of Bracket 15.0% 18.3 22.3 34.0 34.0 34.3 35.0 35.0 Quantitative Problem: Andrews Corporation has income from operations of $244,000. In addition, it received interest income of $24,400 and received dividend income of $33,000 from another corporation. Finally, it paid $10,800 of interest income to its bondholders and paid $43,600 of dividends to its common stockholders. Using the 2017 corporate tax schedule, what is the firm's federal income tax? Round your intermediate and final answers to the nearest cent