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Marginal Tax Rate Versus Averate Rate

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Please help with the following accounting problem. Provide at least 200 words in the solution.

Mr. C comes to you for tax planning advice. He is considering an investment, but does not know whether to use his average (average tax rate 8%)or his marginal rate (marginal tax rate 10%) in the analysis. Advise Mr. C on this issue. Explain.

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Solution Summary

This solution defines a taxpayer's marginal and average tax rates and discusses the uses of each, particularly regarding investment planning. The explanation is given in 296 words.

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Problem: Mr. C comes to you for tax planning advice. He is considering an investment, but does not know whether to use his average (average tax rate 8%)or his marginal rate (marginal tax rate 10%) in the analysis. Advise Mr. C on this issue. Explain.

Solution:
The United States income tax system is considered to be progressive; that is, a taxpayer's taxable income is broken into increments, called "brackets", and each successive "bracket" is taxed at higher rate than the ...

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