COMPREHENSIVE TAX CALCULATION PROBLEM Girardo's Projection from His Accountant Does Not Include His Salary

question 93

Essay

COMPREHENSIVE TAX CALCULATION PROBLEM. Girardo and Gloria are married with 3 children, ages 14, 11, and 8. Gloria is a senior vice-president for a security firm and Girardo is a househusband who spends 15 hours a week doing volunteer work for local organizations. Girardo inherited $800,000 from his grandfather in 1999. He spends 10 hours a week managing the rental property they purchased with part of the inheritance and the family's stock portfolio. Prior to becoming a househusband, Girardo was an award winning high school accounting teacher. In February of 2018, Girardo is approached by the high school principal about returning to his former position. Girardo would receive an annual salary of $50,000. He is a little hesitant about accepting the offer, because he enjoys his volunteer work. Girardo's accountant has provided him with the following projection of their 2018 tax liability:
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$$\begin{array} { l r } \text { Gloria's sal ary } & \$ 130,000 \\\text { Interest income } & 6,500 \\\text { Short-term capital gains } & 2,500 \\\text { Rental loss } & ( 5,000 ) \\\text { Adjusted gross income } & \$ 134,000 \\\text { Standard deduction } &(24,000)\\\text { Taxable income } & \$ 110,0000 \\& \\\text { Tax liability before tax credit } & \$ 16,079\\\text { Child credit } ( \$ 2,000 \times 3 ) & ( 6,000 ) \\\text { Net tax liability } & \$ 10,079\end{array}$$

Girardo's projection from his accountant does not include his salary from teaching. Assume that Girardo's pro-rata salary for the year will be $30,000. Calculate Girardo and Gloria's tax liability, if Girardo decides to return to teaching. Also determine the marginal and effective tax rates on Girardo's salary.
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Definitions:

Death Penalty

The death penalty, also known as capital punishment, is a government-sanctioned practice whereby a person is put to death by the state as a punishment for a crime.

Racially Discriminatory

Practices, policies, or attitudes that lead to unequal treatment or outcomes for individuals based on race or ethnicity.

Capital Punishment

The legally authorized killing of someone as punishment for a crime, often referred to as the death penalty.

Death Penalty

A legal punishment involving the execution of an individual by the state as retribution for a crime.