Mr.and Mrs.Johnson and their two children,Alice and Ben,are the four equal partners in JAB Partnership.This year,JAB generated $40,000 of ordinary income.Compute the tax cost associated with this income if Mr.and Mrs.Johnson's marginal tax rate is 35%,Alice's marginal tax rate is 25%,and Ben's marginal tax rate is 28%.

Question

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The income generated by JAB partnership will be divided equally between the four partners. Hence, each partner will receive $10,000 ($40,000/4).

Now, each partner's share of the income will be taxed at their respective marginal tax rates.

Mr. and Mrs. Johnson's combined share of the income is $20,000 ($10,000 each). Their marginal tax rate is 35%. Therefore, their tax cost will be 35% of $20,000, which is $7,000.

Alice's share of the income is $10,000. Her marginal tax rate is 25%. Therefore, her tax cost will be 25% of $10,000, which is $2,500.

Ben's share of the income is also $10,000. His marginal tax rate is 28%. Therefore, his tax cost will be 28% of $10,000, which is $2,800.

Hence, the total tax cost associated with JAB partnership's income is $7,000 + $2,500 + $2,800 = $12,300. Therefore, the answer is A) $12,300.

MrAnd MrsJohnson and Their Two Children,Alice and Ben,are the Four Equal