Based on the following table of the tax rates, what is the average tax rate for...

Based on the following table of the tax rates, what is the average tax rate for a firm with taxable income of $120,000? Taxable Income ($) Tax Rate 0 – 50,000 15% 50,000 – 75,000 25% 75,000 – 100,000 34% 100,000 – 335,000 39%

A. 20% B. 25% C. 34% D. 39%

Solutions

Expert Solution

Total income = $120,000

As per the tax rate table for the first $50,000 there will be 15% tax applicable.For the next $25,000 tax rate of 25% will be applicable and for the Next $25,000 Tax rate of 34% will be applicable . And for the remaining $20,000 tax rate of 39% will be applicable.

Total tax

= 50,000*15% + 25,000*25% + 25,000*34% + 20,000*39%

= 7,500 + 6,250 + 8,500 + 7,800

= $30,050

Average tax rate = Total tax/ Taxable income

= 30,050/120,000

= 25.04%

Therefore the correct option is B 25%.

jeff jeffy answered 2 years ago

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