Question

Deco Corporation had $700,000 in revenues last year in the form of sales. The firm also received interest income of $45,000. If the firm had operating expenses of $550,000 and a depreciation expense of $60,000, calculate the firm's taxable income.

Taxable Corporate Income tm

$ 0-50,000 15%

50,000-75,000 25%

75,000-100,000 34%

100,000-335,000 39%

335,000 and up 34%

Deco's marginal tax rate is?

Deco's tax liability is?

Deco's average tax rate is?

Answer 1

	Add. Operating Income from Firm	$         7,00,000
	Add. Income from Interest	$             45,000
	Less. Operating expenses	$        -5,50,000
	Net Taxable Income	$         1,95,000
Ans 1	Marginal Tax Rate	= Marginal Tax / Net Taxable Income	per working given below
		15.64%	=30500/195000
	Working:
	Marinal Tax $	$             30,050	=2500+4750+22800
	$ 0-50,000 15%	$                      -		no marginal tax as it is basic slab
	50,000-75,000 25% less 15%	$               2,500	=(75000-50000)*(25-15)%	marginal tax is additional burden over n above 15% basic slab
	75,000-100,000 34% less 15%	$               4,750	=(100000-75000)*(34-15)%
	100,000-335,000 39% less 15%	$             22,800	=(195000-100000)*(39-15)%
Ans 2	Tax liability	$             59,300	per working given below
	Working:
	Tax $	$             59,300	sum of all slabs
	$ 0-50,000 15%	$               7,500	=(50000)*15%
	50,000-75,000 25%	$               6,250	=(75000-50000)*25%
	75,000-100,000 34%	$               8,500	=(100000-75000)*34%
	100,000-335,000 39%	$             37,050	=(195000-100000)*39%
Ans 3	Average Tax Rate	= Tax liability / Net Taxable Income
		30.41%	=59300/195000

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