Question

Hunt Taxidermy, Inc. is concerned about the taxes paid by the company in 2018. In addition to $7.7 million of taxable income, the firm received $624,000 of interest on state-issued bonds and $540,000 of dividends on common stock it owns in Oakdale Fashions, Inc.

Calculate Hunt Taxidermy’s tax liability. (Enter your answer in dollars not in millions. Round your answer to the nearest dollar amount.)

Calculate Hunt Taxidermy’s average tax rate. (Round your answer to 2 decimal places.)

Calculate Hunt Taxidermy’s marginal tax rate.

Answer 1

	Total taxable Income is $ 7,862,000 (7,700,000 + ( 30% x 540,000) )
	*Interest income on state issued bonds of $624,000 is exempt.
	**Dividend income is includable pnly to the extent of 30%.
	A reference to the tax table indicates that 7,862,000 shall fall in the range of $335,001-$10,000,000 where a fixed tax of 113,900 + 34% of income above 335,000 will be applicable.
a.)	Tax liability is $ 2,673,080 (113,900 + (34% x ( 7,862,000 - 335,000 ) ) )
b.)	Average tax rate is 34%        ( 2,673,080 / 7,862,000 )
c.)	Marginal tax rate is 34% ,because each additional $ of income earned above current taxable income of $7,862,000 will have a tax rate of 34% until it crosses $10,000,000 taxable income.