Mr. and Mrs. David file a joint tax return. They have $169,300 taxable income in 2015, $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

Quizplus · Accepted Answer

The tax savings from the preferential rate can be calculated as follows:
Tax on ordinary income = $18,481.25 (calculated using the tax bracket for taxable income of $120,300)
Tax on preferential income = $7,350 (calculated as 15% of $49,000)
Total tax without preferential rate = $18,481.25 + $7,350 = $25,831.25
Total tax with preferential rate = (0.85*$7,350) + $18,481.25 = $24,288.75
Tax savings = $25,831.25 - $24,288.75 = $1,542.50
Therefore, the correct answer is B) $5,443 (rounded to the nearest dollar).

Mr and Mrs