Question

Kasar Co. has net income, before taxes, of $335,000, including $35,000 in interest revenue from municipal bonds and $12,000 paid for officers’ life insurance premiums where the company is the beneficiary. The effective tax rate for the current year is 29.5%. What is Kasar’s actual tax rate for the current year?

Answer 1

Answer: Kasar’s actual tax rate for the current year is 31.7%.

Step-by-step explanation:

Given that,

Net income, before taxes, = $335,000

Interest revenue = $35,000

Paid for officers’ life insurance premiums = $12,000

Effective tax rate = 29.5%

In this question, income tax expense is equal to the income tax liability.

Income tax liability = Taxable income × Tax rate

Taxable income = $335,000 - $35,000 + 12000

= $312,000

Income tax liability = 335000 × 29.5%

= $98825

Actual tax rate =
`(Income\ tax\ expense)/(Taxable\ Income)`

=
`(98825)/(312000)`

= 31.70%