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21 May, 04:14

The taxpayer's marginal tax bracket is 25%. Which would the taxpayer prefer? a. $1.00 taxable income rather than $1.25 tax-exempt income. b. $1.00 taxable income rather than $.75 tax-exempt income. c. $1.25 taxable income rather than $1.00 tax-exempt income. d. $1.40 taxable income rather than $1.00 tax-exempt income. e. None of these.

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  1. 21 May, 04:28
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    option (d) $1.40 taxable income rather than $1.00 tax-exempt income

    Explanation:

    The taxpayer would prefer option (d) $1.40 taxable income rather than $1.00 tax-exempt income

    The above statement will be chosen because in this case the after tax income will be greater than the tax exempt according to the condition given in the question

    Given:

    Marginal Tax bracket = 25%

    thus,

    Taxable income = $1.40

    Tax = $1.40 * 0.25 = $0.35

    Therefore,

    The net income = Taxable income - Tax = $1.40 - $0.35 = $1.05

    and,

    $1.05 > $1.00
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