Introduction to Finance: Markets, Investments, and Financial Management, Fourteenth Edition

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.

INTERNET ACTIVITY

Get updated tax rate information and download forms from the IRS tax site, [http://www.irs.gov.)

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:

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