Read example 7 on p. 268 and example 8 on p .269 in unit 4E then answer the " think about it " on the bottom of p.269

Solution judes entre INICOMIC ULDZU,UUU 19 SUULL L LLL LLLLLL FICA tax = 7.65% X $26,000 = $1989 Now we must find her income tax. We get her taxable income by subtracting her $4050 personal exemption and $6350 standard deduction: taxable income = $26,000 - $4050 - $6350 == $15,600 From Table 4.9, her income tax is 10% on the first $9325 of her taxable income and 15% on the remaining amount of $15,600 - $9325 = $6275. Therefore, her income tax is (10% X $9325) + (15% X $6275) = $1874 (rounded up). Her total tax, including both FICA and income tax, is total tax = FICA + income tax = $1989 + $1874 = $3863 Her overall tax rate, including both FICA and income tax, is total tax $3863 = 0.149 gross incorhe $26,000 Jude's overall tax rate is about 14.9%. Note that she pays more in FICA tax than in income tax. EXAMPLE 8 Dividend and Capital Gains Income In 2017, Serena was single and lived off an inheritance. Her gross income consisted solely of $90,000 in dividends and long-term capital gains. She had no adjustments to her gross income, but had $12,000 in itemized deductions and a personal exemption of S4050. How much tax does she owe? What is her overall tax rate? Solution She owes no FICA tax because her income is not from wages. She had no adjustments to her gross income, so we find her taxable income by subtracting her item- ized deductions and personal exemption: taxable income = $90,000 - $12,000 - $4050 = $73,950 Because her income is all dividends and long-term capital gains, she pays tax at the special rates for these types of income. The 0% rate for dividends and long-term capital gains applies to the income on which she would have been taxed at 10% or 15% if it had been ordinary income, which from Table 4.9 means her first $37.950 of income. The rest of her income is taxed at the special 15% capital gains rate. Her total tax is (0% X $37.950) + (15% X ($73,950 - $37.950]) = $0 + $5400 = $5400 O capital gains rate 15% capital gains rate Her overall tax rate is total tax gross income $5400 $90,000 = 0.06 Think About It Note that Serena in Example 8 had a gross income more than triple that of Jude in Example 7. Compare their tax payments and overall tax rates. Who pays more tax? Who pays at a higher tax rate? Explain