The Dakota Corporation had a 2015 taxable income of $30,500,000 from operations

Question

The Dakota Corporation had a 2015 taxable income of $30,500,000 from operations after all operating costs but before (1) interest charges of $8,300,000; (2) dividends received of $730,000; (3) dividends paid of $5,150,000; and (4) income taxes.

Use the tax schedule in Table 2.3 to calculate Dakota’s income tax liability. (Round your answer to the nearest dollar amount.)

What are Dakota’s average and marginal tax rates on taxable income? (Round your answers to the nearest whole percent.)

Use the tax schedule in Table 2.3 to calculate Dakota’s income tax liability. (Round your answer to the nearest dollar amount.)

Explanation / Answer

a) Taxable income = $(30,500,000 - 8,300,000) = $22,200,000

Tax Liability (A) = 6,416,667 + 35% of 3,866,667 = $7,770,000

Tax on Dividend Paid (B) = 15% on $5,150,000 = $772,500

Income tax liability = $(7,770,000 + 772,500) = $8,542,500

b) Average Tax rate = 8,542,500 / (22,200,000 + 5,150,000) = 31.23%

Marginal Tax rate = 35%

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