Marginal and average tax rates: Use the tax rate taken from Exhibit 11.6 to calc

Question

Marginal and average tax rates: Use the tax rate taken from Exhibit 11.6 to calculate the average tax rate for Lansing, Inc., this year. Lansing's pretax income was $275,000. Exhibit 11.6 U.S. Corporate Tax Rate Schedule in 2007

Taxable Income More But Not More Than Than Tax Owed $0 $50,000 15% of amount beyond $0 $50,000 $75,000 $7,500 + 25% of amount beyond $50,000 $75,000 $100,000 $13,750 + 34% of amount beyond $75,000 $100,000 $335,000 $22,250 + 39% of amount beyond $100,000 $335,000 $10,000,000 $113,900 + 34% of amount beyond $335,000 $10,000,000 $15,000,000 $3,400,000 + 35% of amount beyond $10,000,000 $15,000,000 $18,333,333 $5,150,000 + 38% of amount beyond $15,000,000 $18,333,333 ------- 35% on all income

Explanation / Answer

$ 275,000 falls in the bracket: $100,000 to $335,000.

=> Total tax on $ 275,000 = $22,250 + 39% * ($ 275,000-$100,000) = $90,500

Hence average tax rate = $90,500/$ 275,000 = 32.909091% = ANswer

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