Effective tax rate

[DTS]

I wanted to know the effective tax rate for a client today. My software does not provide this, only the marginal.

I took the tax and divided this by the taxable income to arrive at 14.7%. Did I do this correctly? If not, how do you arrive at this rate?

Thanks,
Dennis

[Bill Tubbs]

Myriad of options...

Do you take the original tax from Line 44, or include the AMT by using Line 46? Or what about using Line 57 (after the non-refundable credits), or "total tax" from Line 63 so you include SE Tax & IRA penalties? Or how about Line 63 - Lines 66a-68 to back out the refundable credits?

Then for income, go with Taxable Income (Line 43)? AGI (Line 37/38)? Or Total Income from Line 22? Or do you add in the portion of non-taxable Soc Security? How about tax-exempt interest? Worker's Compensation? And, what about all their unreported income? OK, I think I may have overdone it with that last one

As you probably guessed by now, my personal opinion is that an effective rate is pretty useless. I much prefer a marginal tax bracket calculation. But one that is a bit more sophisticated. Instead of just spouting their "marginal federal tax bracket", for some clients I will add $100 or $1000 on Line 21 (and perhaps also try with subtracting $100 or $1000) and see what happens to their Fed & State refunds. That to me is a lot more meaningful as when income goes up, phaseouts come more into play, the 7.5% & 2% floors on Sch A go up, more SS becomes taxable, etc.

Just my 2 1/2 cents...
Bill