The tax rates are as shown.Your firm currently has taxable income of $74,000.How much additional tax will you owe if you increase your taxable income by $20,000?

Question

Quizplus · Accepted Answer

To calculate the additional tax, we need to find the marginal tax rate which applies to the additional $20,000 of taxable income. The marginal tax rate is 32%, as it falls in the $77,401-$165,000 taxable income bracket.

Therefore, the additional tax owed is:

$20,000 x 0.32 = $6,400

Adding this to the current tax owed of $17,490 (using the tax bracket of $38,701-$82,500), we get:

$17,490 + $6,400 = $23,890

This means that the additional tax owed if taxable income is increased by $20,000 is $6,710 (not including any other deductions or credits).

Therefore, the best choice is B.

The Tax Rates Are as Shown