Question

In each of the following cases, identify the corporation’s marginal tax rate, and compute its average tax rate. a) Allen Corporation has $160,000 taxable income for its tax year ended December 31, 2017. b) Benson Corporation has $160,000 taxable income for its tax year ended December 31, 2018. c) Carver Corporation has $160,000 taxable income for its tax year ended October 31, 2018.

Answer 1

a.) For Income lying between $ 100,000 to $ 335,000 , tax liability will be $ 22,250 + 39% x ( 160,000 - 100,000 )

= $ 22,250 + ( 60,000 x 39% )

= $ 22,250 + $ 23,400

= $ 45,650

Marginal tax rate is 39%

Average tax rate is 28.53% ( 45,650 / 160,000 )

b.) Tax rate is flat 21% .

Tax laibility is $ 33,600 . ( 160,000 x 21% )

Marginal tax rate is 21% .

Average tax rate is 21% ( 33,600 / 160,000 ).

c.) Tax laibility will be $ 35,608. ( ( 45,650 x 2/12 ) + ( 33,600 x 10/12) )

Marginal tax rate is 21% .

Average tax rate is 22.26% ( 35,608 / 160,000 ).