InstructionsFor 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

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