Answer:
overall pre tax rate on pre tax income is 49.71%
Explanation
For calculating the overall tax rate of the Crocker and Company we have to do a step wise calculation where the given info available to us is that CC has -
taxable income of $550,000
Jimmy's ordinary and dividend marginal tax rate are 37% and 23.8%
CC pre tax income = Taxable income deducted before distributing to Jimmy
+
Tax which is deducted on dividend given to Jimmy
where,
Taxable income deducted before given to Jimmy =
$550,000 - $550,000 x (1 - 34%)
= $550,000 - $550,000 x .66
= $550,000 - 363,000
= $187,000
Tax deducted on dividend given to Jimmy =
($550,000 - $187,000) x 23.8%
= $363,000 x .238
= $86,394
Now adding them
$187,000 + $86,394 = $273,394
Overall tax rate = $273,394 / $550,000
= .49708 ( multiply by 100 to make in percentage)
= 49.71%
