Kravitz Corporation had income before taxes of $890,000 and a tax rate of 45%. Included in the income are $40,000 in municipal bond interest and $20,000 in fines and penalties. There are no other book-tax differences. Refer to Kravitz Corporation. What is Kravitz's effective income tax rate? (Do not round intermediate calculations. Only round your final answer to the nearest tenth percent.)

Question

Quizplus · Accepted Answer

Municipal bond interest is tax-exempt, so it reduces taxable income. Fines and penalties are not deductible. Taxable income = $890,000 - $40,000 + $20,000 = $870,000. Tax = $870,000 * 45% = $391,500. Effective tax rate = $391,500 / $890,000 = 44%.

Kravitz Corporation Had Income Before Taxes of $890,000 and a Tax