Taxable Income

Instructions
For this assignment we will be looking at personal income taxes. In 2017 it was normal to be able to
have “deductions” and a “personal exemption” deducted from one’s total income before determining
their taxable income. For the purposes of this activity, we will consider only a “single” filing status.
In 2017, the standard deduction was $6,350 and the personal exemption was $4,050. So, an individual
who brought in a total income of $30,000 would have to pay taxes on $19,600 ($30,000-$6,350-$4050).
The $19,600 represents their taxable income.
Part 1: Hypothetical Tax Code 1
Consider a simplified version of the real tax code. Assume that the tax rate on all taxable income is 15%
and the standard deduction ($6,350) and personal exemption ($4,050) still apply.
1.
2.
3.
4.
5.
If your total income before exemptions was $35,000, what is your taxable income?
How much would you have to pay in taxes on this income?
What percentage of your total income would you pay in taxes?
Write a function to model the total tax paid, T(x), with a total income of x dollars.
How many different slopes are on this graph (below)? What do they represent?
Below a graph that shows taxes paid as a function of total income for the total income between $0 and
$60,000: (see attachment 1)
Part 2: Hypothetical Tax Code 2:
Now consider another hypothetical tax code. Assume the tax rate on the first $15,000 of taxable income
is 10% and the tax rate on any additional income is 18%. The standard deduction ($6,350) and personal
exemption ($4,050) still apply.
In other words:
• For taxable income from $0 to $15,000, you pay 10% of your taxable income in taxes, plus
• For taxable income above $15,000, you pay 18% of your taxable income.
1.
2.
3.
4.
5.
If your total income before exemptions were $10,000 how much would you pay in taxes?
If your total income were $20,000 how much would you pay in taxes?
If your total income were $50,000 how much would you pay in taxes?
Write a function to model the total tax paid, T(x), with a total income of x dollars.
Create a graph that shows taxes paid as a function of total income for the total income between
$0 and $60,000.
6. How many different slopes are on this graph?
NOTE: For a Total Income of $80,000, an individual would pay $11,328 in taxes.
Part 3: House Tax Plan for 2018
For 2017 the actual tax brackets for a single tax filer were:
• For taxable income from $0 to $9,325, you pay 10% of it in taxes, plus
• For taxable income from $9,326 to $37,950, you pay 15% of it in taxes, plus
• For taxable income from $37,951 to $91,900, you pay 25% of it in taxes, plus
• For taxable income from $91,901 to $191,650, you pay 28% of it in taxes, plus
• For taxable income from $191,651 to $416,700, you pay 33% of it in taxes, plus
• For taxable income from $416,701 to $418,400, you pay 35% of it in taxes, plus
• For taxable income at or above $418,401, you pay 39.6%.
At the end of 2017, the House proposed a new tax plan: (http://www.businessinsider.com/tax-brackets2018-trump-tax-plan-chart-house-senate-comparison-2017-11)
Proposed New Tax Plan:
• For taxable income from $0 to $45,000, you pay 12% of it in taxes, plus
• For taxable income from $45,001 to $200,000, you pay 25% of it in taxes, plus
• For taxable income from $200,001 to $500,000, you pay 35% of it in taxes, plus
• For taxable income of $500,001 or more, you pay 39.6%.
Where the standard deduction was raised to $12,200 and the personal exemption was eliminated. For
the remaining exercises, we will only consider this proposed tax plan.
Where the standard deduction was raised to $12,200 and the personal exemption was eliminated. For
the remaining exercises, we will only consider this proposed tax plan.
1. Complete both of the tables below:
Taxable Income
Lower Bound
Upper Bound Rate Maximum Money in Bracket
$0
$45,000
12%
$45,000
$155,000
$200,000
No Limit
No Limit
Total Income
Lower Bound
Upper Bound Rate Maximum Money in Bracket
$0
$12,200
0%
$12,200
$57,200
$45,000
$512,200
No Limit
No Limit
Maximum Tax in Bracket
$5,400
$105,000
No Limit
Maximum Tax in Bracket
$0
$38,750
No Limit
2.
3.
4.
5.
How many slopes would be on this graph?
Write a function to model the total tax paid, T(x), with a total income of x dollars.
How much does a person pay in taxes if their total income is $210,000?
What is the slope of the line when an individual’s total income is $210,000?
NOTE: For a Total Income of $85,000, an individual would pay $12,350 in taxes.
Summary
Language: English (US)
Topic: Taxable income
Subject: Accounting