1. Nick Browns and Daisy both had income in 2012. Nick is a doctor for Royal hospital and made $135,000 in wages while Daisy worked as a banker and also earned annual salary of $75,000. The Browns received $4,500 in interest on savings account. They had invested in two types of bonds: 20-year corporate bond from Google and state of Pennsylvania revenue bond. During the year 2012, they received interest income from these two bonds, $1,800 from Google and $1,500 on the state bond. At the moment Nick is still paying for his student loan and he paid $4,500 in interest on his student loan in 2012 and Daisy is taking a course in MBA specialized in Banking Operation as she desired to get to higher position in her career. She paid $3,250 in tuition in 2012

In addition, they also sold some G.E stocks for $25,000 that had been purchased ten years before for $5,000. Six years ago, they invested $30,000 in some real estate property in some rural area with the expectation that those areas would thrive today. However, due to the economic downturn, their investment has decreased in value dramatically. They decided to sell those lands in 2012 to prevent themselves from extra loss. They received $15,000 from the sale.

The Browns paid $20,200 in mortgage payments of which $14,800 was interest and the rest reduced principal. They paid real estate taxes of $5,750 and state income tax of $18,500 during the year. They contributed $3,500 to their state Education fund and $3,000 to the support of Daisy’s elderly mother. They have two young children (Daisy’s mother is not a dependent) a. Calculate the couple’s taxable income? (12 marks) b. What is their tax liability for 2012? (12 marks) c. What is their average tax rate? (3.5 marks)
Notes:
* In 2012, the long-term capital gains tax rate will be 0% for taxpayers in the 10% and 15% tax brackets and 15% for