Return on Software: Maximizing the Return on Your Software Investment

Effective Income Tax Rates

An effective income tax rate is an average tax rate over a range of incomes. Effective income tax rates make it easier to calculate after-tax cash-flow streams because, by using an effective rate, you don't have to worry about the specific marginal rates talked about above. You would simply use the single effective rate over the entire income range. The effective rate, t, over a given range of taxable income is as follows:

Suppose a small corporation wants to know the effective tax rate over the range of taxable incomes between $40,000 and $60,000. The tax payable on $40,000 is this:

15% * $40,000 = $6000

The tax payable ...