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Taxable Versus Tax-Exempt Bonds Paxton Lynch, radio station manager in Denver, Colorado, is in the 25 percent federal marginal tax bracket and pays an additional 5 percent in income taxes to the state of Colorado.Paxton currently has more than$20,000 invested in corporate bonds boughtat various times that are earning differing amounts of taxable interest: $10,000 in ABC earning 5.9 percent; $5,000 in DEF earning 5.5 percent; $3,000 in GHI earning 5.8 percent; and $2,000 in JKL earning 5.4 percent. What is the after-tax
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- Tax Drill - General Business Credit Carlson's general business credit for the current year is $84,000. His net income tax is $190,000, tentative minimum tax is $175,000, and net regular tax liability is $185,000. He has no other Federal income tax credits. Carlson's general business credit allowed for the tax year is $arrow_forwardCapital There are two types of capital gains subject to capital gains tax: Capital gains on the sale of domestic stocks sold directly to buyer subject to 15% Capital gains on the sale of real properties not used in business subject to 6%. EXAMPLE: Seth engages in transactions 1 and 2. Seth sold his shares of stocks directly to the buyer with the selling price of P180,000 and sold his personal lot with a tax base of P5M. Requirements: Discuss capital gains tax using the names and amounts given.arrow_forwardAnastasia wants to invest $1.5M. Based on her income she is currently in the 33% tax bracket for ordinary income and in the 15% bracket for long-term capital gains. Her tax brackets for state income tax purposes are 7% and 0% on long-term capital gains. Consider the following situations: Situation 2 Situation 2 Corporate Municipal Type Bonds Bonds Time horizon 5 years 7 years 11% interest 6.5% interest Income annually annually Discount rate 5.5% 5% Repayment/Sale Repaid after 5 Repaid after years 7 years Taxable at Not taxable for federal ordinary Comments income tax rates; no state income tax but state income tax of 7% applies income tax Requirements: Determine the net present value of the after-tax cash flow for: (1) Situation 1: (2) Situation 2:arrow_forward
- Use the following information to calculate the federal average tax rate (ignore tax credits) for a taxpayer who earned $115,000 from employment, and where bonds were sold for $20,000 during the year that originally cost $10,000: Taxable income Up to $47,630 On the next $47,629 On the next $52,408 On the next $62,704 Over $210,371 Select one: Tax Rate 15% 20.5% Based on the above, the average tax rate (ATR) is closest to: a. 19.15% b. 19,45% c. 20.5% d. 26.0% 26% 29% 33%arrow_forwardTaxpayer Y, who has a 30 percent marginal tax rate, invested $65,000 in a bond that pays 8 percent annual interest. Compute Y’s annual net cash flow from this investment assuming that a. The interest is tax-exempt income.b. The interest is taxable income.arrow_forwardLevi received the following interest payments this year. What amount must Levi include in his gross income for federal tax purposes? Bond Interest Amount a. $2,120. b. $2,960. Oc$1,440. d. $0. ABC Corporation City of Morgantown State of West Virginia U.S. Treasury (federal) $1,400 250 590 720arrow_forward
- An investor purchases one municipal and one corporate bond that pay rates of retum of 5.00% and6.40% respectively If the investor is in the 15% tax bracket, his after tax rates of return on the municipal and corporate bonds would be respectivelyarrow_forwardAn investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 12% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A) 7.2%; 9.1% B) 7.2%; 8.008% C) 6.12%; 7.735% D) 8.471%; 9.1% Provide an accurate answer with justification.arrow_forwardAn investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 15% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A. 6.12%;7.735% B. 7.2%;7.735% C. 7.2%;9.1% D. 8.471%;9.1%arrow_forward
- An investor purchases one municipal and one corporate bond that pay rates of return of 6% and 8%, respectively. If the investor is in the 24% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A) 6%; 8% B) 4.5%; 6% C) 4.5%; 8% D) 6%; 6.08%Please provide justificationarrow_forwardGreen corporation has the following income and expense items for Year 1. Sales revenue (all cash): $750,000 City of Flint bond interest: $100,000 Microsoft bond interest: $50,000 Wage expenses: $400,000 Do not calculate Green's tax liability and just assume Green's total tax liability in Year 1 is $100,000. Determine Green's effective tax rate (ETR) for Year 1. Instructions: If the answer is 0.11, write 0.110. (This is not the correct answer). Round to the 3rd decimal place.arrow_forwardWhich of the following statements is true regarding education tax credits? Group of answer choices The American Opportunity credit permits a maximum credit of 20% of qualified expenses up to $10,000 per year. The lifetime learning credit is available for qualifying tuition and related expenses incurred by students pursuing only graduate degrees. The American Opportunities Credit is only available for the first four-years of higher education. The American Opportunity Credit is calculated per return, while the lifetime learning credit is available per eligible student.arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT