How to find a tax rate

how to find a tax rate

Related Articles

The corporate income tax rate in the United States uses a progressive structure, so the more money the company makes, the higher its rate of taxes. If the company just barely reaches a higher bracket, most of its income isn't taxed at that rate. Thus the effective tax rate is a better measure of the company's expenses. For example, if the company's last dollar of taxable income falls in the 35 percent tax bracket, using 35 percent to budget for tax expenses is going to overestimate the company's tax burden. To figure the effective tax rate, you need to know the company's income and expenses for the year.

Step 1

Calculate the company's profits by subtracting the company's expenses from the company's gross receipts. Expenses include overhead, inventory and salaries of employees.

For example, if the business has $900,000 in receipts, $100,000 in overhead, $225,000 in salaries and $175,000 in inventory costs, the company's profit is $400,000.

Step 2

Add all of the corporate income taxes paid by the company for the year, including federal, state and local income taxes to calculate the total taxes paid. For example, if the company pays $60,000 in federal taxes and $20,000 in state income taxes, the company's total tax burden is $80,000.

Divide the company's total taxes paid by the company's profit to figure the tax rate as a decimal. In this example, divide $80,000 by $400,000 to get 0.2.

Multiply the rate by 100 to convert it to a percentage. In this example, multiply 0.2 by 100 to find the company's effective tax rate of 20 percent.


Category: Taxes

Similar articles: