Reference no: EM131870761
Kate is getting ready to do her taxes. She is single and lives in Detroit. Kate earned $250,000 in taxable income in 2015. She reviews the following table, which shows the IRS tax rates for a single taxpayer in 2015.
On Annual Taxable Income... The Tax Rate Is... (Percent)
Up to $9,225 10.0
From $9,225 to $37,450 15.0
From $37,450 to $90,750 25.0
From $90,750 to $189,300 28.0
From $189,300 to $411,500 33.0
From $411,500 to $413,200 35.0
Over $413,200 39.6
Based on the IRS table, Kate calculates that her marginal tax rate is ________ when her annual taxable income is $250,000.
Kate calculates that she owes _________ in income taxes for 2015. Kate then calculates that her average tax rate is ____, based on the annual income level and the amount of taxes she owes for 2015. After figuring out what she owes in taxes in 2015, Kate decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $4,000 of taxable income from the federal government. The maximum amount that Kate is willing to pay to learn this strategy and reduce her taxable income by $4,000 is ________. (Hint: Sheltering some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in taxable income and shelters $10,000 pays income tax on only $40,000.)