1. Elki would like to invest $50,000 in tax-exempt securities. He now has the money invested in a certificate of deposit that pays 5.75% annually. What rate of in- terest would the tax-exempt security have to pay to result in a greater return on Elki's investment than the certificate of deposit? Work the problem assuming that Elki's mar- ginal tax rate is 15%, 25%, 28%, and 33%.
2. Leroy and Amanda are married and have three dependent children. During the current year, they have the following income and expenses:
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Salaries
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$110,000
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Interest income
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45,000
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Royalty income
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27,000
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Deductions for AGI
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3,000
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Deductions from AGI
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9,000
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a. What is Leroy and Amanda's current year taxable income and income tax liability?
b. Leroy and Amanda would like to lower their income tax. How much income tax will they save if they validly transfer $5,000 of the interest income to each of their children? Assume that the children have no other income and that they are entitled to a $950 standard deduction but are not allowed a personal exemption deduction.