Table 1.4
Use the following tax rates and income brackets for 2012 to answer the following question(s).
-In 2012, John and Nicole earned a combined taxable income of $148,800 from employment plus $1,000 in long term capital gains and they file a joint tax return. What is their total federal income tax? Round to the nearest dollar.
A) $41,664
B) $29,723
C) $29,593
D) $22,320

Question

Table 1.4
Use the following tax rates and income brackets for 2012 to answer the following question(s). 
-In 2012, John and Nicole earned a combined taxable income of $148,800 from employment plus $1,000 in long term capital gains and they file a joint tax return. What is their total federal income tax? Round to the nearest dollar.
A) $41,664 
B) $29,723 
C) $29,593 
D) $22,320

Quizplus · Accepted Answer

First, calculate their taxable income by subtracting their standard deduction and exemptions, which equals $128,800. Then, use the tax brackets to determine the amount of tax owed on each portion of their income:
- $17,400 taxed at 10% = $1,740
- ($70,700 - $17,400) taxed at 15% = $8,415
- ($142,700 - $70,700) taxed at 25% = $18,000
- ($146,400 - $142,700) taxed at 28% = $1,043
- $1,000 in long term capital gains taxed at 15% = $150 
Total federal income tax owed is $29,348. However, they may be subject to the Alternative Minimum Tax (AMT) which could increase their tax liability. Since the question does not provide enough information to determine if they are subject to the AMT, we will go with the closest answer, which is C) $29,593.

Table 1.4 Use the Following Tax Rates and Income Brackets for 2012