Tarik,a single taxpayer,has AGI of $55,000 which includes $1,000 of qualified dividends.Tarik has $7,000 of itemized deductions.What is his 2016 federal income tax?

Question

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First, we need to calculate Tarik's taxable income by subtracting his itemized deductions from his AGI:
Taxable income = AGI - Itemized deductions
Taxable income = $55,000 - $7,000 = $48,000
Next, we need to determine Tarik's tax bracket by using the 2016 tax brackets:

Income tax brackets for single taxpayers in 2016:
10% on taxable income from $0 to $9,275, plus
15% on taxable income over $9,275 to $37,650, plus
25% on taxable income over $37,650 to $91,150, plus
28% on taxable income over $91,150 to $190,150, plus
33% on taxable income over $190,150 to $413,350, plus
35% on taxable income over $413,350 to $415,050, plus
39.6% on taxable income over $415,050.

Since Tarik's taxable income is $48,000, he falls into the 25% tax bracket. However, because he has $1,000 of qualified dividends, those dividends are taxed at the lower capital gains tax rate. The capital gains tax rate for someone in the 25% tax bracket is 15%.

To calculate Tarik's federal income tax, we need to calculate the tax on his ordinary income and on his qualified dividends separately and then add them together:

Tax on ordinary income:
10% on taxable income from $0 to $9,275 = $927.50
15% on taxable income over $9,275 to $37,650 = $4,024.25
25% on taxable income over $37,650 to $48,000 = $2,338.75
Total tax on ordinary income = $7,290.50

Tax on qualified dividends:
15% on $1,000 = $150.00

Total federal income tax:
$7,290.50 + $150.00 = $6,694.50

Therefore, the correct answer is B) $6,694.

Tarik,a Single Taxpayer,has AGI of $55,000 Which Includes $1,000 of Qualified