Mr.and Mrs.David file a joint tax return.They have $169,300 taxable income in 2017,$120,300 of which is ordinary income and $49,000 of which is taxed at a 15% preferential rate.Compute their tax savings from the preferential rate.

Question

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First, we need to calculate the tax for the $120,300 of ordinary income. The tax on this amount would be $18,713.75 (calculated using the 2017 tax tables). 
Next, we need to calculate the tax on the $49,000 preferential income. The tax on this amount at a 15% rate would be $7,350. 
The total tax without the preferential rate would be $26,063.75 ($18,713.75 + $7,350). 
If we assume that all of the ordinary income would also be taxed at the preferential rate (which it wouldn't be, but this makes the calculation simpler), the total tax with the preferential rate would be $25,011 ($39,300 x 15% + $80,000 x 25% + $50,000 x 28%) 
The tax savings from the preferential rate would then be $1,052 ($26,063.75 - $25,011). However, the question is asking for the tax savings just from the preferential rate on the $49,000 of preferential income. So we need to subtract the tax on that income without the preferential rate (which we already calculated as $7,350) from the tax on that income with the preferential rate ($7,263). This gives us a total tax savings of $1,087 ($7,350 - $6,263). Rounded to the nearest dollar, this is $5,386.

MrAnd MrsDavid File a Joint Tax Return