Suppose that in addition to $5.65 million of taxable income, Texas Taco, Inc. re

Question

Suppose that in addition to $5.65 million of taxable income, Texas Taco, Inc. received $800,000 of interest on state-issued bonds and $280,000 of dividends on common stock it owns in Arizona Taco, Inc.

Use the tax schedule in Table 2.3 to calculate Texas Taco’s income tax liability. (Enter your answer in dollars not in millions)

Income tax liability

What are Texas Taco’s average and marginal tax rates on taxable income? (Round your answers to 2 decimal places.)

Average tax rate

%

Marginal tax rate

%

Table 2.3                                             

Taxable Income

Pay this Amount on Base Income

Plus this Percentage on Anything Over the Base

$0-$50,000

$0

15%

$50,001-$75,000

7,500

25

$75,001-$100,000

13,750

34

$100,001-$335,000

22,250

39

$335,001-$10,000,000

113,900

34

$10,000,001-$15,000,000

3,400,000

35

$15,000,001-$18,333,333

5,150,000

38

Over $18,333,333

6,416,667

35

Income tax liability

Explanation / Answer

solution:

Taxable income = $56,50,000

Interest on state issued bonds =$8,00,000 not taxable therefore not included in taxable income

Dividend on common stock =$2,80,000

70% of dividend income not taxable therefore 70% of dividend income not included in taxable and 30% of dividend income would be included

Taxable income =$56,50,000+ 30%*$2,80,000=$57,34,000

Income tax liability= $1,13,900 + 0.34* (57,34,000-3,35,000)= $19,49,560

Average tax rate= $19,49,560/$57,34,000= 34%

If Texas teco $1 more of taxable income, it would pay 34 cents more in taxes. Marginal tax rate would be 34%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.