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Chapter 2 - Master it! Using Excel to find the marginal tax rate can be accomplished using the VLOOKUP function. However, calculating the total tax
Chapter 2 - Master it! | ||||||||||
Using Excel to find the marginal tax rate can be accomplished using the VLOOKUP function. However, calculating the total tax bill is a little more difficult. Below we have shown a copy of the IRS tax table for an individual. Often, tax tables are presented in this format. | ||||||||||
If taxable income is over -- | But not over -- | The tax is: | ||||||||
$0 | $9,075 | 10% of the amount over $0 | ||||||||
9,075 | 36,900 | $907.50 plus 15% of the amount over $9,075 | ||||||||
36,900 | 83,950 | $5,081.25 plus 25% of the amount over $36,900 | ||||||||
83,950 | 186,350 | $18,193.75 plus 28% of the amount over $89,350 | ||||||||
186,350 | 405,100 | $45,353.75 plus 33% of the amount over $186,350 | ||||||||
405,100 | 406,750 | $117,541.25 plus 33% of the amount over $405,100 | ||||||||
406,750 | $118,188.75 plus 39.6% of the amount over $406.750 | |||||||||
In reading this table, the marginal tax rate for taxable income less than $9,075 is 10%. If the taxable income is between $9,075 and $36,900, the tax bill is $907.50 plus the marginal taxes. The marginal taxes are calculated as the taxable income minus $9,075 times the marginal tax rate of 15%. | ||||||||||
Below, we have the tax table as shown in the textbook, as well as a taxable income. | ||||||||||
Taxable income: | $ 1,350,000 | |||||||||
The corporate income tax table currently in effect is: | ||||||||||
Taxable income is greater than or equal to. | But less than | Tax rate | ||||||||
$ - | $ 50,000 | 15% | ||||||||
50,001 | 75,000 | 25% | ||||||||
75,001 | 100,000 | 34% | ||||||||
100,001 | 335,000 | 39% | ||||||||
335,001 | 10,000,000 | 34% | ||||||||
10,000,001 | 15,000,000 | 35% | ||||||||
15,000,001 | 18,333,333 | 38% | ||||||||
18,333,334 | 35% | |||||||||
a. | Create a tax table for corporate taxes similar to the individual tax table shown above. | |||||||||
b. | For a given taxable income, what is the marginal tax rate? | |||||||||
c. | For a given taxable income, what is the total tax bill? | |||||||||
d. | For a given taxable income, what is the average tax rate? | |||||||||
Master it! Solution | ||||||||||
a. | If taxable income is over -- | But not over -- | The tax is: | |||||||
$ - | $ 50,000 | 15% | of the amount over | $ - | ||||||
50,000 | 75,000 | $ 7,500 | plus | 25% | of the amount over | 50,000 | ||||
75,000 | 100,000 | plus | 34% | of the amount over | 75,000 | |||||
100,000 | 335,000 | plus | 39% | of the amount over | 100,000 | |||||
335,000 | 10,000,000 | plus | 34% | of the amount over | 335,000 | |||||
10,000,000 | 15,000,000 | $ 3,400,000 | plus | 35% | of the amount over | 10,000,000 | ||||
15,000,000 | 18,333,333 | plus | 38% | of the amount over | 15,000,000 | |||||
18,333,333 | - | plus | 35% | of the amount over | 18,333,333 | |||||
b. | The marginal tax rate is: | 34% | ||||||||
c. | The total tax bill is: | |||||||||
Tax on the bottom of marginal tax bracket: | $ - | |||||||||
Amount of income in marginal tax bracket: | ||||||||||
Total tax: | ||||||||||
d. | The average tax rate is: | |||||||||
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