Question

Bowling Green Toys has $175,000 income. For corporate income tax, the tax rate is 15% for $0 to $50,000, 20% for $50,001 to $100,000, and 30% for above $100,000. What is the average income tax rate for the firm?

	a.	22.86%
	b.	30%
	c.	18.33%
	d.	20.86%

Answer 1

Calculating the Tax Liability for the Taxable Income of $175,000:-

Tax Bracket	Tax rate		Tax Liability
0-50,000	15%	50,000*15%	7500
50001-100,000	20%	50,000*20%	10,000
100,001 & above	30%	75,000*30%	22500
		Total Tax Liability	40,000

Average tax Liability = Total Tax Liability/Taxable Income

= $40,000/$175,000

Average tax Liability = 22.86%

So, the average income tax rate for the firm is 22.86%

Option A