Individual Income Taxes
43rd Edition
ISBN: 9780357109731
Author: Hoffman
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 5, Problem 16DQ
Tammy, a resident of Virginia, is considering purchasing a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. She is aware that State of Virginia bonds of comparable risk are yielding 4.5%. However, the Virginia bonds are exempt from Virginia tax, but the North Carolina bond interest is taxable in Virginia. Which of the two options will provide the greater after-tax return to Tammy? Tammy can deduct any state taxes paid on her Federal income tax return. In your analysis, assume that the bond amount is $100,000.
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Katie, a resident of Virginia, is considering purchasing a $100,000 North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. She is aware that State of Virginia bonds of comparable risk are yielding 4.5%. However, the Virginia bonds are exempt from Virginia tax, but the North Carolina bond interest is taxable in Virginia. Katie can deduct any state taxes paid on her Federal income tax return. In your analysis, assume that the bond amount is $100,000.
If required, round your computations and answers to the nearest dollar. Assume that Katie itemizes her deductions for federal taxes.
Determine the after tax income from each bond.
Virginia Bond:
$fill in the blank 1
North Carolina Bond:
$fill in the blank 2
Dana intends to invest $66,000 in either a Treasury bond or a corporate bond. The treasury bond yields 5 percent before tax, and the corporate bond yields 6 percent before tax. Assume Dana's federal marginal rate is 24 percent and she itemizes deductions.
a-2. How much interest after-tax would Dana earn by investing in the corporate bond?
b-1. If she were to move to another state where her marginal state rate would be 10 percent, which of the two options should she choose?
b-2. How much interest after-tax would Dana earn by investing in the corporate bond as per requirement b-1?
Gertie has the choice between investing in a State of New York bond at 5.5 percent and a surething incorporated bond at 8.5 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she invest?
Chapter 5 Solutions
Individual Income Taxes
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