omework (Ch 16) 4. Taxes paid for a given income level Tim is getting ready to do his taxes. He is single and lives in New York City, Tim earned $50,000 in 2011. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2011. The Tax Rate Is... (Percent) On Annual Taxable income... 10 15 25 Up to $8,500 From $8,500 to $34,500 From $34,500 to 583,600 From $83,600 to $174,400 From $174,400 to $379,150 Over $379,150 28 33 35 Based on the IRS table, Tim calculates that his marginal tax rate is when his annual income is $50.000 Tim calculates that he owes in income taxes for 2011 Tim then calculates that his average tax rate is based on the annual income level and the amount of taxes he owes for 2011 After figuring out what he owes in taxes in 2011. Tim decides to ask an accountant for tax advice. The accountant claims that he has found a legal 25 28 From $34,500 to $83,600 From $83,600 to $174.400 From $174,400 to $379,150 Over $379,150 33 35 Based on the IRS table, Tim calculates that his marginal tax rate is when his annual income is $50,000. Tim calculates that he owes in income taxes for 2011 Tim then calculates that his average tax rate is based on the annual income level and the amount of taxes he owes for 2011. After figuring out what he owes in taxes in 2011, Tim decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $3,000 of taxable income from the federal government. The maximum amount that Tim is willing to pay to learn this strategy and reduce his taxable income by $3,000 is (Hint: Sheltering some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in income and shelters $10,000 pays income tax on only $40,000.)