Question

(Calculating corporate income tax) Last year the commercial real estate firm Kelly and Co., Inc., earned taxable income of $19 million. Calculate Kelly’s federal income taxes. Now calculate Kelly’s average and marginal tax rates.

Answer 1

Taxable income of Kelly and Co., Inc., -                                                                               $19 million

To calculate tax liability (refer the Corporate Tax Rates schedule)

$19 million falls into over 18,333,333 tax bracket which has 35% of tax rate

Therefore the corporate tax = marginal tax rate * taxable income

= 35% * $19,000,000

= $6,650,000

Therefore Kelly federal income tax Liability is $6,650,000

The company's marginal and average tax rates on taxable income are

Company’s marginal tax rate is 35%.

Average tax rate = Income tax Liability / Taxable income

Average Tax Rate = $6,650,000/$19,000,000 = 35.00%

Therefore company's marginal and average tax rates both are 35%