Chapter 1 Taxation of Individuals and
Business Entities Quiz with Answers
1. What is marginal tax rate?
- ✔✔the tax rate that applies to the next additional increment of
a taxpayer's taxable income
(change in tax/ change in taxable income)
2. What is average tax rate?
- ✔✔the taxpayer's average level of taxation on each dollar of
taxable income
(total tax/ taxable income)
3. What is effective tax rate? –
✔✔the taxpayer's average rate of taxation on each dollar of total
income (both taxable and non-taxable)
4. Which tax rate is most helpful for tax planning?
- ✔✔marginal tax rate
5. Which tax rate tells you more about a person's tax burden? -
✔✔effective tax rate
