Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has76)$15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income.If Leonardo instead had $30,000 of additional tax deductions for year 2017, his marginal tax rate on the deductions would be: (Use tax rate schedule.)
A) 28.00%
B) 25.35%
C) 16.37%
D) 25.00%
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

Using the tax rate schedule for married filing separately in 2017, Leonardo's taxable income of $80,000 puts him in the 25% tax bracket. This means that any additional tax deductions would be taxed at a marginal rate of 25%.

If Leonardo had $30,000 of additional tax deductions, his taxable income would be reduced to $50,000. This would move him into the 15% tax bracket, which has a marginal tax rate of 15%. Therefore, his marginal tax rate on the additional deductions would be 15.00%.

However, since Theresa earns $50,000 of taxable income, the couple's combined income would still put them in the 25% tax bracket. This means that any savings from Leonardo's additional deductions would be offset by the fact that Theresa would be taxed at a higher rate. Therefore, the overall tax savings for Leonardo would be limited.

Thus, the best choice is B, 25.35%, since it reflects the total tax rate resulting from the combination of Leonardo's income and his wife's income.

Leonardo, Who Is Married but Files Separately, Earns $80,000 of Taxable