Question

Hunt Taxidermy, Inc., is concerned about the taxes paid by the company in 2015. In addition to $43.8 million of taxable income, the firm received $3,070,000 of interest on state-issued bonds and $1,800,000 of dividends on common stock it owns in Oakdale Fashions, Inc. (Use Table 2.3)

Calculate Hunt Taxidermy’s tax liability. (Enter your answer in dollars not in millions. Round your answer to the nearest dollar amount.)

Tax liability

$

Calculate Hunt Taxidermy’s average tax rate.

Average tax rate

%

Calculate Hunt Taxidermy’s marginal tax rate.

Marginal tax rate

%

Answer 1

(1) Income in the form of interest from state issued bonds is not taxable.

(2) Only 30% of diviend income is included in receivers taxable income, since 70% is exempted.

Question - 1

Total taxable Inccome = 43,800,000 + 30% (1,800,000) = 44,340,000

Tax liability = 5150,000 ( fixed amount) + 38% ( income between 15000,000 and 18333,333) and 35% of income above 18,333,333.

= 5150,000 + 38% ( 3,333,333) + 35% ( 44,340,000 - 18,333,333)

= 5150,000 + 1,266,667+ 9102333 = 15,519,000 ............ tax liability

Question - 2

Average tax rate = Tax liability / Taxable Income * 100 = 15,519,000 / 44,340,000 * 100 = 35%

Question - 3

Marginal tax rate = 35%

Any additional income on and above 18,333,333 shall have a flate rate of 35%. Hence marginal rate for a company with 44,340,000 of taxable income shall be 35%.