Question

Suppose your firm earns $4 million in taxable income.

What is the firm's tax liability?

What is the average tax rate?

What is the marginal tax rate?

_ 50,000 15%

50,001 - 75,000 25%

75,001- 100,000 34%

100,001-335,000 39%

335,001-10,000,000 34%

10,000,001-15,000,000 35%

15,000,001-18,333,333 38%

18,333,334- 34%

Answer 1

What is the firm's tax liability is:

$TL = 50,000×0.15 + 25,000×0.25 + 25,000×0.34 + 235,000×0.39 + 3,665,000×0.34 = 1,360,000.$

The average tax rate is:

$ATR = 1,360,000/4,000,000 = 0.34$or 34%.

The marginal tax rate is 34%.