Given the following tax table, how much tax should you pay on a taxable income of \$40,000?\begin{tabular}{|c|c|}\hlineTaxable Income & Tax Rate \\\hlineUp to \$10,000 & 10\% \\\$10,001 - \$30,000 & 15\% \\\$30,001 - \$50,000 & 20\% \\Above \$50,000 & 25\% \\\hline\end{tabular}

• A. \$5,500
• B. \$7,000
• C. \$8,000
• D. \$6,500

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the tax table provided. The table specifies different tax rates for different income brackets. For example, up to \$10,000 is taxed at 10%, \$10,001 to \$30,000 is taxed at 15%, \$30,001 to \$50,000 is taxed at 20%, and income above \$50,000 is taxed at 25%.
2. Step 2: Break down the taxable income of \$40,000 into the relevant brackets. The first \$10,000 falls into the 10% bracket, the next \$20,000 (from \$10,001 to \$30,000) falls into the 15% bracket, and the remaining \$10,000 (from \$30,001 to \$40,000) falls into the 20% bracket.
3. Step 3: Calculate the tax for each bracket. For the first bracket, multiply \$10,000 by 10% (\(10,000 \times 0.10\)). For the second bracket, multiply \$20,000 by 15% (\(20,000 \times 0.15\)). For the third bracket, multiply \$10,000 by 20% (\(10,000 \times 0.20\)).
4. Step 4: Add the tax amounts from each bracket together. This will give you the total tax owed for the taxable income of \$40,000.
5. Step 5: Verify your calculations to ensure accuracy and confirm that the total tax matches the expected answer provided in the problem.