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Introduction to Finance: Markets, Investments, and Financial Management, Fourteenth Edition by Edgar A. Norton, Ronald W. Melicher

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Chapter LE13. LEARNING EXTENSION 13: Federal Income Taxation

In addition to financing and risk factors, income tax liabilities also may differ for each form of business organization selected. Income from partnerships and proprietorships is combined with other personal income for tax purposes. We show the 2010 rate schedules for (1) a married couple filing jointly and (2) a single person.

FILING STATUS

TAXABLE INCOME

MARGINAL TAX RATE

Married Filing Jointly

$0–16,750

10%

 

16,750–68,000

15

 

68,000–137,300

25

 

137,300–209,250

28

 

209,250–373,650

33

 

Over 373,650

35

Single

$0–8,375

10%

 

8,375–34,000

15

 

34,000–82,400

25

 

82,400–171,850

28

 

171,850–373,650

33

 

Over 373,650

35

A cursory observation shows that personal income tax rates are progressive tax rates because the higher the income, the larger the percentage of income that must be paid in taxes. For example, let's assume that the taxable income from a proprietorship is $50,000 and that the owner does not have any additional income. If the owner is married and filing a joint return and the spouse has no reportable income, the income will be taxed as follows:

INTERNET ACTIVITY

The marginal tax rate is the rate paid on the last dollar of income. In our example it is 15 ...

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