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How to Calculate the Effective Tax Rate of a Corporation

Original post by Matt McGew of Demand Media

The United States and many other countries have a graduated corporate tax system. This means that corporations pay a gradually higher tax rate based on revenues earned. As a result, corporations do not pay the same tax rate on all revenues. The effective tax rate is the calculation that shows the overall tax rate paid by the corporation during the tax year.

Contents

Step 1

Determine the total tax paid by the corporation. You can find this information on the corporation's tax return. As an example, assume a corporation paid $250,000 in taxes during the tax year.

Step 2

Determine the corporation's net income before taxes. You can also find this information on the corporation's tax return. Assume the corporation had $1 million in net income before taxes during the tax year.

Step 3

Divide the corporation's income tax paid by the net income before taxes. Continuing the same example, $250,000 / $1,000,000 = 25 percent. This figure represents the effective tax rate for the corporation.


                   

References

  • "Principles of Taxation for Business and Investment Planning"; Sally Jones et al; 2009
  • "Principles of Accounting" Belverd Needles et al; 2010

About the Author

Since 1992 Matt McGew has provided content for on and offline businesses and publications. Previous work has appeared in the "Los Angeles Times," Travelocity and "GQ Magazine." McGew specializes in search engine optimization and has a Master of Arts in journalism from New York University.


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