Investor Glossary-effective tax rateInvestor Glossary-effective tax rateInvestor Glossary-effective tax rateInvestor Glossary-effective tax rateInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Effective Tax Rate

The HTML to link to this page
 

The effective tax rate for an individual is usually the ratio of taxes to adjusted gross income. The effective tax rate thus measures the average rate of taxation for all income. Here's an example of an effective tax rate: assume a taxpayer pays 5% on the first $10,000 ($500) in income and 10% on the second $10,000 ($1,000) in income. The effective tax rate would be $1,500/$20,000, or 7.5%. The effective tax rate can be contrasted to the marginal tax rate, which is the rate paid on each additional dollar in income. The effective tax rate for a corporation is usually income tax expense for financial reporting purposes divided by pretax accounting income. Analysts examine the effective tax rate to determine a company's ability to manage its tax burden. Calculating a corporate effective tax rate raises can raise difficult issues, however, because taxes for reporting purposes and taxes paid will ordinarily not match owing to timing differences.



Rate this effective tax rate definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: inflation, stock split, required rate of return, 144a, option premium, VIX, class C shares, implied volatility, diluted share, average price per share, APR, risk management, deferred revenue, LIBOR, limit order, deferred tax, real GDP, ex-dividend, current ratio, annual return, minority interest, 1031 exchange, stock market close, FICO score, labor relations, per diem, retained earnings, quality assurance, ex-dividend date, FTSE, debt service coverage, liquidity ratio, 401a, command economy, dividends payable, Key Rate Duration, Zero Cost Collar, irrevocable trust, balance sheet, reverse mortgage, open position, 1035 exchange, phantom income, covered put, cancelled check, in escrow, EBITDA, wholly-owned subsidiary, margin rate


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use