Question

1:1-12 1:1-5 S t raising tax rates? Carmen has computed that her average tax rate is 16% and her marginal tax rate is 24% for the current year. She is considering whether to make a charitable contribution to her church before the end of the tax year. Which tax rate is of greater significance in measuring the tax effect for her de. cision? Explain. Why are the gift 8 E 1:1-6

Answer 1

1. Average Tax rate is the total amount of tax divided by total income. the marginal tax rate is the incremental tax paid on incremental income. So if she decided to make charitable contribution to chruch then her avarage tax will be lower as her total income will be lower by the amount. Marginal Tax Rate would of greater significance as average tax rate calculates tax amount on the total income and making charitable contribution will not going to lower the income where as margina ltax rate will be lower as their is incremental decrease in the income so the margina ltax rate will fall.