Chapter 09, Problem 011 TenTec in Sevierville, Tennessee, makes commercial and a

Question

Chapter 09, Problem 011 TenTec in Sevierville, Tennessee, makes commercial and amateur radio equipment, including receivers, transceivers, antenna tuners, linear amplifiers, and so on. Their taxable income last year was $705,000. They have established a new line of electronic equipment that is on sale this year and that is expected to add another $100,000 to taxable income

Determine the effective (average) tax rate on all of last year’s taxable income.

Determine the effective (average) tax rate on all of this year’s taxable income

Determine the incremental tax rate

Determine the marginal tax rate this year

Explanation / Answer

Answer Answer 1 Income tax in 2015 AGI Rate 705000 Tax Slab Total tax 0 to 413200 119996.25 413201 to 705000 39.60% 115552.80 235549.05 Average Tax rate 235549.05/705000 33.41% Answer 2 Income tax in 2016 AGI Rate 805000 Tax Slab Total tax 0 to 415050 120529.75 415051 to 805000 39.60% 154420.20 274949.95 Average Tax rate 274949.95/805000 34.16% Answer 3 Incremental tax rate Tax rate in 2015 33.41% Tax rate in 2016 34.16% Incremental Tax rate 0.75% Answer 4 Income tax in 2016 AGI Rate 705000 Tax Slab Total tax 0 to 415050 120529.75 415051 to 805000 39.60% 114820.20 235349.95 Addition tax for 100000 39600 Marginal tax rate 39600/10000 39.60%

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