Income-averaging law

[soumyopriyosaha]

State X's income-averaging law allows a portion of one's income to be taxed at lower rate than the rate based on one's total taxable income. To use income averaging, the taxpayer must have earned taxable income for a particular year that exceeds 140 percent of his or her average taxable income for the previous three years. People using income averaging owe less tax for that year than they would without income averaging.

Which of the following individuals would be most seriously affected if income averaging were not permitted in computing the taxes owed for current year?

(A) Individuals whose income has steadily decreased for the past three years
(B) Individuals whose income increased by 50 percent four years ago and has remained the same since then
(C) Individuals whose income has doubled this year after remaining about the same for five years
(D) Individuals who had no income this year, but did in each of the previous three years
(E) Individuals who are retired and whose income has remained about the same for the past ten years

OA: C

[vijay_venky]

Apparently the group alluded to in option C is the only group that gets affected by the income averaging law, so the option is C.

[gmatmachoman]

Stated condition for the" Income- Averaging law" to be applicable:

Y>1.4 X, where Y is Current Taxable income, X: Average Taxable income for the 3 previous years.

In Option C

Y= 2.0 X ( this is way greater than 1.4 X). so people falling in this pool will suffer a lot when that "law" is not implemented.

IMO C fits the bill

[joseph32]

It seems to me that the right answer is C