The Ohio Corporation had a 2018 taxable income of $50,000,000 from operations after all operating costs but before (1)interest charges of $500,000,
(2)dividends received of $45,000,
(3)dividends paid of $10,000,000,and
(4)income taxes.
Using the tax schedule in Table 2.3,what is Ohio's income tax liability? What are Ohio's average and marginal tax rates on taxable income from operations?

Question

Quizplus · Accepted Answer

The first 70 percent of the dividends received by Ohio Corp. is not taxable. Thus, only 30 percent of the dividends received are taxed, so:
Taxable income = $50,000,000 - $500,000 + (0.3)$45,000 = $49,513,500
Now Ohio's Corp.'s tax liability will be:
Tax liability = $6,416,667 + 0.35 ($49,513,500 - $18,333,333) = $17,329,725
Ohio Corp.'s resulting average tax rate is now:
Average tax rate = $17,329,725.45/$50,000,000 = 34.66%
Finally, if Ohio Corp. earned $1 more of taxable income, it would still pay 35 cents (based upon its marginal tax rate of 35 percent) more in taxes.

The Ohio Corporation Had a 2018 Taxable Income of $50,000,000