Answer #4 only

TABLE 2.3 Corporate Tax Rates TAXABLE INCOME TAX RATE 0-50,000 15% 25 34 39 34 35 38 35 50,001-75,000 75,001-100,000 100,001-335,000 335,001-10,000,000 10,000,001-15,000,000 15,000,001-18,333,333 18,333,334+ AVERAGE VERSUS MARGINAL TAX RATES In making financial decisions, it is frequently important to distinguish between average and marginal tax rates. Your average tax rate is your tax bill divided by your taxable income, in other words, the percentage of your income that goes to pay taxes. Your marginal tax rate is the tax you would pay (in percent) if you earned one more dollar. The percentage tax rates shown in Table 2.3 are all marginal rates. Put another way, the tax rates apply to the part of income in the indicated range only, not all income The difference between average and marginal tax rates can best be illustrated witha simple example. Suppose our corporation has a taxable income of $200,000. What is the tax bill? Using Table 2.3, we can figure our tax bill as 15(S 50,000) = $ 7,500 .25($ 75,000-50,000) = 6,250 .34($100,000-75,000) = 8,500 .39($200,000-100,000) = 39,000 $61,250 Our total tax is thus $61,250 In our example, what is the average tax rate? We had a taxable income of $200,000 and a tax bill of $61,250, so the average tax rate is $61,250/200,000 = 30.625%. What is the marginal tax rate? If we made one more dollar, the tax on that dollar would be 39 cents, so our marginal rate is 39 percent. The IRS has a great website! (www.irs.c