Calculate the taxable income

Reference no: EM1360665

Joan and Harry Leahy both had income in 2006. Harry made $52500 in wages. Joan has an incorporated small business that paid her a salary of $30000. In addition, the business had profits of $15000, which were paid to the Leahys as dividends. They received $5600 in interest on savings and $350 in interest on a loan made to Harry's brother, Lou. Lou also repaid $2000 of principal on that loan during the year. The couple had interest income from two bonds, $2200 on a 20-year IBM issue and $2700 on a state of Michigan revenue bond.

They sold some Biotech stock for $14000 that had been purchased five years before for $4000. Two years ago, they invested $50000 in some rural land in the advice of a real estate agent. They sold the property in 2006 for $46000.

The Leahys paid $12500 in mortgage payments of which $9000 was interest and the rest reduced principal. They paid real estate taxes of $2750 and state income tax of $6800 during the year. They contributed $1500 to their church and $3000 to the support of Joan's elderly mother. They have two young children. (Joan's mother is not a dependent.)

Question:
1. Calculate the Leahy's taxable income.
2. What is their tax liability for 2006?
3. What is their average tax rate?
4. What is their marginal tax rate? Can there be more than one marginal rate? Explain.

Reference no: EM1360665

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