Marginal and average tax rates: Use the tax rate taken from Exhibit 11.6 to calculate the average tax rate for Lansing, Inc., this year. Lansing's pretax income was $275,000.
Exhibit 11.6 U.S. Corporate Tax Rate Schedule in 2007
Taxable Income
More
Than
But Not More Than
Tax Owed
$0
$50,000
15% of amount beyond $0
$50,000
$75,000
$7,500 +
25% of amount beyond $50,000
$75,000
$100,000
$13,750 +
34% of amount beyond $75,000
$100,000
$335,000
$22,250 +
39% of amount beyond $100,000
$335,000
$10,000,000
$113,900 +
34% of amount beyond $335,000
$10,000,000
$15,000,000
$3,400,000 +
35% of amount beyond $10,000,000
$15,000,000
$18,333,333
$5,150,000 +
38% of amount beyond $15,000,000
$18,333,333
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35% on all income

Question

Quizplus · Accepted Answer

The average tax rate is calculated by dividing the total tax paid by the pretax income. In this case, Lansing's pretax income is $275,000. The tax owed is calculated as follows:$7,500 + 25% of ($75,000 - $50,000) = $13,750$13,750 + 34% of ($100,000 - $75,000) = $22,250$22,250 + 39% of ($275,000 - $100,000) = $91,250Therefore, the average tax rate is $91,250 / $275,000 = 33.0%.

Marginal and Average Tax Rates: Use the Tax Rate Taken