Item 5 of 5 (20 points) During the 2020 tax year, Sally Jones earns a salary of $600,000 and Bill Smith earns a salary of $600,000. Neither individual had any other income during the year, and neither can itemize deductions. Refer to the 2020 tax rate schedules and standard deduction table from Appendix D when answering the following items: a) Assume Sally and Bill each file a Form 1040 income tax return using a single filing status. Show your calculation of Sally or Bill's taxable income and the resulting tax. What is Sally or Bill's average tax rate as a single person? What is the combined tax liability for both Sally and Bill if they each file their returns as unmarried individuals? b) Sally and Bill are thinking of getting married in 2020 and filing a Form 1040 using the married filing joint filing status. Show your calculation of their projected taxable income and their resulting tax. Determine the difference between this tax amount and the combined tax liability that you calculated in part (a) above, and correctly identify the difference as a marriage penalty or marriage bonus/benefit. What is Sally and Bill's average tax rate as a couple filing a joint return? All else equal, would you advise Sally and Bill to get married before the end of the 2020 tax year? c) Now assume that Bill Smith earns a salary of $60,000 (rather than $600,000). Sally's salary remains at $600,000. Similar to part (a), if Sally and Bill each file a Form 1040 income tax return using a single filing status, show your calculation of Bill's new taxable income and his resulting tax. What is Bill's new average tax rate as a single person? What is the combined tax liability for both Sally and Bill if they each file their returns as unmarried individuals? Next, similar to part (b), Sally and Bill are thinking of getting married. Show your calculation of their projected taxable income and their resulting tax using the married filing joint filing status. What is the amount of the marriage penalty or marriage bonus/benefit in this case, and all else equal, do you advise Sally and Bill to get married before the end of the 2020 tax year? d) Now for Sally Jones ONLY, assume that $100,000 of her $600,000 of total income is comprised of long-term capital gains and qualified dividends, which are eligible for a preferential tax rate. The remaining $500,000 is from salary. If Sally files a Form 1040 income tax return using a single filing status, show your calculation of Sally's taxable income and the resulting tax. By how much was Sally's tax reduced due to the lower preferential rate compared to her tax in part (a) above? What is Sally's average tax rate in this new situation? Item 5 of 5 (20 points) During the 2020 tax year, Sally Jones earns a salary of $600,000 and Bill Smith earns a salary of $600,000. Neither individual had any other income during the year, and neither can itemize deductions. Refer to the 2020 tax rate schedules and standard deduction table from Appendix D when answering the following items: a) Assume Sally and Bill each file a Form 1040 income tax return using a single filing status. Show your calculation of Sally or Bill's taxable income and the resulting tax. What is Sally or Bill's average tax rate as a single person? What is the combined tax liability for both Sally and Bill if they each file their returns as unmarried individuals? b) Sally and Bill are thinking of getting married in 2020 and filing a Form 1040 using the married filing joint filing status. Show your calculation of their projected taxable income and their resulting tax. Determine the difference between this tax amount and the combined tax liability that you calculated in part (a) above, and correctly identify the difference as a marriage penalty or marriage bonus/benefit. What is Sally and Bill's average tax rate as a couple filing a joint return? All else equal, would you advise Sally and Bill to get married before the end of the 2020 tax year? c) Now assume that Bill Smith earns a salary of $60,000 (rather than $600,000). Sally's salary remains at $600,000. Similar to part (a), if Sally and Bill each file a Form 1040 income tax return using a single filing status, show your calculation of Bill's new taxable income and his resulting tax. What is Bill's new average tax rate as a single person? What is the combined tax liability for both Sally and Bill if they each file their returns as unmarried individuals? Next, similar to part (b), Sally and Bill are thinking of getting married. Show your calculation of their projected taxable income and their resulting tax using the married filing joint filing status. What is the amount of the marriage penalty or marriage bonus/benefit in this case, and all else equal, do you advise Sally and Bill to get married before the end of the 2020 tax year? d) Now for Sally Jones ONLY, assume that $100,000 of her $600,000 of total income is comprised of long-term capital gains and qualified dividends, which are eligible for a preferential tax rate. The remaining $500,000 is from salary. If Sally files a Form 1040 income tax return using a single filing status, show your calculation of Sally's taxable income and the resulting tax. By how much was Sally's tax reduced due to the lower preferential rate compared to her tax in part (a) above? What is Sally's average tax rate in this new situation
