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    Marginal tax rate vs Average tax rate

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    For someone planning to start a new business, is the average or the marginal tax rate more relevant?

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    For planning purposes, the marginal rate is more appropriate because it is the rate that was applied to the last dollar earned. In making projections of net income for a business, growth would normally be built into the projections and a conservative approach would always compute tax at a marginal rate for the next dollar earned.

    The marginal rate is ...

    Solution Summary

    The 240 word solution gives examples of the concept of marginal versus average tax rate including conclusions about what is appropriate from a planning perspective.