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Calculating Tax Liability, Marginal Rate

Williams Inc reports total net income of $130,000 during 2012. This includes $10,000 of income from 5.5% Orange County municipal bonds. Thus the Corporation's taxable income is equal to $120,000.

a) What is William's tax liability for 2012?
b) What are William's marginal, average and effective tax rates, respectively?
c) If equivalent taxable bonds pay 7.5% interest, what is the implicit rate for the Orange County bonds?
d) Did Williams make a good choice to invest in the municipal bonds instead of the taxable bonds?

Solution Preview

a) What is William's tax liability for 2012?

Taxable Income is (130,000 -10,000): 120,000
Liability Pertaining to tax is calculated as follows:
(50000 x 0.15) + (25000 * 0.25) + (25000 * ...

$2.19