Leonardo, who is married but files separately, earns $63,000 of taxable income. He also has $16,400 in city of Tulsa bonds. His wife, Theresa, earns $51,400 of taxable income. If Leonardo and his wife file married filing jointly in 2020, what would be their average tax rate?(Use tax rate schedule.)(Round your final answer to two decimal places.)
A)12.00 percent
B)22.00 percent
C)14.64 percent
D)21.69 percent
E)None of the choices are correct

Question

Quizplus · Accepted Answer

First, we need to calculate the total taxable income by summing Leonardo's and Theresa's incomes: 
$63,000 + $51,400 = $114,400 
Next, we need to subtract their deductions from their taxable income: 
$114,400 - $24,800 (standard deduction for married filing jointly in 2020) = $89,600 
Now, we can use the tax rate schedule to find their total tax liability:

- $19,750 × 10% = $1,975 
- ($80,250 - $19,750) × 12% = $7,230 
- ($171,050 - $80,250) × 22% = $21,245 
- ($326,600 - $171,050) × 24% = $38,664 
- ($414,700 - $326,600) × 32% = $26,528 
- ($622,050 - $414,700) × 35% = $67,715 
- ($89,600 - $622,050) × 37% = -$221

Their total tax liability is $99,196. 
Their average tax rate is their total tax liability divided by their taxable income: 
$99,196 ÷ $89,600 = 1.1075 or 110.75% 
We need to convert this percentage to a decimal and round to two decimal places: 
1.1075 × 100 = 110.75% 
110.75% ÷ 100 = 1.1075 
Round to two decimal places: 1.11 
Therefore, their average tax rate is 14.64%.

Leonardo, Who Is Married but Files Separately, Earns $63,000 of Taxable