The Talley Corporation had a taxable income of $495,000 from operations after al

Question

The Talley Corporation had a taxable income of $495,000 from operations after all operating costs but before (1) interest charges of $99,000, (2) dividends received of $29,700, (3) dividends paid of $19,800, and (4) income taxes. What are the firm's income tax liability and its after-tax income? Round your answers to the nearest cent. Income tax liability $ After-tax income $ What are the company's marginal and average tax rates on taxable income? (Hint: the average tax rate is the average rate paid on all income.) Round your answers to two decimal places. Marginal tax rate % Average tax rate %

Explanation / Answer

Income $495,000 Less Interest deduction (99,000) Plus: Dividends received 8,910 Taxable income $404,910 70% of dividends received are excluded from taxes = $29,700(1 - 0.70) = $8,910 Tax = $22,250 + ($404,910 - $100,000)*0.39 Tax= $22,250 + $118,915 = $141,165. After-tax income: Taxable income $404,910 Taxes (141,165) Plus Non-taxable dividends received 20,790 Net income $222,145 Non-taxable dividends: $29,700 x 0.7 = $20,790. Marginal tax rate is 39 percent Average tax rate is $141,165/$404,910 = 34.86%. hence the average tax is 34.86%

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