What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!

# How to Calculate Taxes Using Marginal Tax Rate

Original post by Ryan Menezes of Demand Media

Large investment gains may increase your tax liability.

The marginal tax rate is the ratio between a change in tax liability and a change in income. Economists define the marginal tax rate as the rate on a tax base's last dollar earned, but when you use the rate to calculate your taxes, it generally refers to the rate on a specific venture or asset separate from your base income. This added income or expense could push you into a new tax bracket. The venture's marginal tax rate in such cases combines the statutory rates for several brackets.

## Contents

### Step 1

Divide the marginal tax rate by 100. For example, if a new venture's marginal tax rate is 21.4 percent, divide 21.4 by 100, producing 0.214.

### Step 2

Multiply the decimal value that you derived from the marginal tax rate by the income from the venture. For example, if the venture earns you \$8,000, multiply 0.214 by \$8,000, producing a liability on the venture of \$1,712.

### Step 3

Add the tax liability on the venture to your independent tax liability. For example, if you otherwise owe \$5,200, add \$1,712 to \$5,200, for a total of \$6,912. This is your overall tax liability.

```
jQuery( window ).load(function() {
inline = jQuery('#google-ad-inline');
inline.find('script').remove();
jQuery('#article p').eq(1).after(inline);
});

```

### About the Author

Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

### Photo Credits

• Comstock/Comstock/Getty Images