Question

Marginal and average tax rates Partner A, a single taxpayer, is one of two partners in a small business. As such, she receives pass-through income that is taxed at her personal tax rates. After all adjustments and deductions have been made, including the 20% qualified business income deduction, she is preparing to calculate her taxes owed for the year. Using the tax rate schedule given here i perform the following: a. Calculate the tax liability, after tax earnings, and average tax rates for the following levels of partnership earnings before taxes: 512,300; 580,000 $295,000, $497,000; $1.1 million; $1.6 milion; and $1.9 million b. Plot the average tax rates (measured on the y-axis) against the pretax income levels (measured on the x-axis). What generalization can be made concerning the relationship between these variables? a. Calculate the tax liability, after tax earnings, and average tax rates for the following levels of partnership earnings before taxes: $12,300; $80,600; $295,000; $497,000: $1,100,000: $1.6 million, and $1.9 million. The tax liability for earnings before taxes of $12,300 is $ (Round to the nearest dollar.)

please answer all the parts.

Answer 1

Please find attached table showing Tax liability, average tax rate and after tax earnings (Last 3 columns):

Reference has been provided under each column to understand the calculations:

For example, before tax earnings of $ 12,300 falls under Range of $ 9525 to $ 38,700, thus base tax will be $ 953 and any amount over than base bracket of $ 9,525 attracts tax of 12% (i.e.) $ 12300 minus $ 9525 * 12%. Thus total tax liability will be base tax of $ 953 + additional 12% tax of  $333 = $ 1,286. Average tax rate = $ 1,286 divided by before tax earnings of $ 12,300. After tax earnings = $ 12,300 minus tax of $1,286

Before tax earnings Base Tax Base bracket Marginal rate Tax Liability Average tax rate After Tax earnings E=(B+(A-C))*D E/A A-E (Rounded off (Rounded off to to 0 decimal 12 decimal places) places) 12300 953 9525 12% 1286 10.46% 11014 80600 4454 38700 22% 13672 16.96% 66928 295000 45690 200000 35% 78940 26.76% 216060 497000 45690 200000 149640 30.11% 347360 1100000 150690 500000 37% 372690 33.88% 727310 1600000 150690 500000 557690 34.86% 1042310 1900000 150690 500000 668690 35.19% 1231310 35% 37% 37% 40.00% 34.86% 35.19% 33.88% 35.00% 30.11% 30.00% 26.76% 25.00% Average tax rates 20.00% 15.00% 10.46% 10.00% 5.00% 0.00% 0 200000 400000 600000 1400000 1600000 1800000 2000000 800000 1000000 1200000 Pretax income levels

Average Tax rate will always be lower than the Marginal tax rate, because of the tax brackets applicable in Marginal tax rates (i.e.) in the same example given above, with total pre tax earnings of $ 12,300, marginal tax rate of 12% applicable only on income greater than the base bracket of $ 9,525. Thus, Average tax rate will always be lower than the marginal tax rate.