Mr. and Mrs. Johnson and their two children, Alice and Ben, are the four equal partners in JAB Partnership. This year, JAB generated $40,000 of ordinary income. Compute the tax cost associated with this income if Mr. and Mrs. Johnson's marginal tax rate is 35%, Alice's marginal tax rate is 24%, and Ben's marginal tax rate is 32%.

Question

Quizplus · Accepted Answer

The $40,000 of ordinary income generated by JAB Partnership will be divided equally among the four partners, giving each partner $10,000 of income to report. The tax cost for each partner is then calculated based on their individual marginal tax rates: Mr. and Mrs. Johnson (35% of $10,000) = $3,500 each, Alice (24% of $10,000) = $2,400, and Ben (32% of $10,000) = $3,200. Adding these amounts together gives a total tax cost of $12,600.

Mr and Mrs