Calculating Marginal and Average Tax Rate for Alan and Tiny Company in 2021
What are the steps to calculate the marginal and average tax rates for Alan and Tiny Company in 2021?
In order to calculate the marginal and average tax rates for Alan and Tiny Company in 2021, the following steps need to be taken: 1. Refer to Table 3.5 to determine Alan's marginal tax rate based on his earnings of $55,000. 2. Use Table 3.7 to calculate Tiny Company's average tax rate with an annual income of $420,000 in 2021. 3. Identify the income brackets that correspond to Alan's earnings and Tiny Company's annual income in the respective tax tables. 4. Calculate the marginal tax rate, which represents the percentage of tax paid on the next dollar earned for Alan. 5. Determine the average tax rate for Tiny Company, which indicates the overall tax rate applied to the total income. 6. Consult the applicable tax tables for accurate calculations. By following these steps and referring to the specific tax tables provided, the marginal and average tax rates for both Alan and Tiny Company can be calculated effectively.