What is the effective tax rate?
Effective tax rate is total or average income tax loads for a person or company after all tax rates have been calculated. Tax rates can be expressed in many ways to emphasize different aspects of the tax system, but the effective tax rate provides the brightest aggregated image of the person's tax burden. Mathematically, it is calculated as a total tax paid, divided by an overall taxable income, and is recorded as a percentage.
The use of calculation, such as effective tax rate, is useful for several reasons. The main thing is that the code of internal income of the United States that drives taxes is very complex. When preparing the tax return, it was not always necessary to consult a qualified accountant, but there is more and more. In the whirlwind of deductions, detention, credits and other complications, it may often be difficult to determine exactly how much income tax you pay as a percentage of total taxable income.
especially in the case of the third -class "progressive" or graded tax systems is SNAdné to lose an overview of the actual tax rate. Consider the following hypothetical situation. In a certain progressive tax system, the first $ 50,000 in the US (USD) of the person is taxed at ten percent. Another $ 100,000 is taxed to 25%and everything remains is taxed at 35%.
If the person pays the required taxes of all of his $ 217,950 from income, it would be easy for the person to know how much its effective tax rate is. Several simple calculations must be proven that it is approximately 24.6%. This percentage will vary slightly for each income level due to the graded system structure.
In addition to a simple effective tax rate, there are several variations in this expression, which can also be useful. For example, a marginal effective tax rate is a combination of marginala effective tax rate and is used to calculate the total tax rate deposited on the last or marginal dollaris spent or earned. The effective average tax rate is another option and may differ from the effective tax rate if calculated by means of a measure other than the taxable income. Although many different ways of expression of tax rates seem to sometimes lead to further confusion, such calculations are useful if there is nothing else that determines when the unfair consequences of the Tax Code could occur.