Taxable Rates
September 3rd, 2010
Question: The Talley Corporation has a taxable income of $365,000 from operations after all operating costs but before (?
The Talley Corporation has a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000 and (4) income taxes. What are the firms income tax liability and its after tax income? What are the company’s marginal and average tax rates on taxable income?
Please help!!
Answer: Here is the calculation for the problem below:
Income $365,000
Less Interest deduction (50,000)
Plus: Dividends received 4,500
Taxable income $319,500
70% of dividends received are excluded from taxes = $15,000(1 - 0.70) = $4,500.Tax = $22,250 + ($319,500 - $100,000)*0.39
Tax= $22,250 + $85,605 = $107,855.After-tax income:
Taxable income $319,500
Taxes (107,855)
Plus Non-taxable dividends received 10,500
Net income $222,145
Non-taxable dividends: $15,000 x 0.7 = $10,500.Marginal tax rate is 39 percent
Average tax rate is $107,855/$319,500 = 33.76%.
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