Consider the question. John has to pay taxes. He earned $100,000 for the year. He has $30,000 in deductions. The first $20,000 of taxable income is taxed at 10%. The rest is taxed at 20%. How much does he pay in taxes?
If the answer is '12000'; explain the reasoning:
His taxable income is 100,000 - 30,000 = $70,000. So he pays 20,000 * .1 = $2000 tax at the lower rate. He has to pay 70,000 - 20,000 = $50,000 at the higher rate. The taxes for that is 50,000 * .2 = $10,000. So his total tax bill is 10,000 + 2,000 = $12,000.