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