Aquatech Microsystems reported a TI of $80,000 last year. If the state income tax rate is 6%, determine the (a) average federal tax rate, (b) overall effective tax rate, (c) total taxes to be paid based on the effective tax rate, and (d) total taxes paid to the state and paid to the federal government.
What will be an ideal response?
(a) Federal taxes = 13,750 + 0.34(5000) = $15,450 (using Table 17-1 rates)
Average federal rate = (15,450/80,000)(100%)
= 19.31%
(b) Effective tax rate = [0.06 + (1 – 0.06)(0.1931)]100%
= 24.15%
(c) Total taxes using effective rate = 80,000(0.2415)
= $19,320
(d) State: 80,000(0.06) = $4800
Federal: 80,000[0.1931(1 – 0.06)] = 80,000(0.1815)
= $14,520
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