In this workout we're being asked to calculate the marginal tax rate and effective tax rate for year 2 We're also told there were no non-recurring items affecting the income statement You may want to pause the recording at this point and have a go yourself So provided to us is an income statement and underneath that income statement, we can see there is a tax footnote The first question asks us to calculate the marginal tax rate, so I'll go to the tax footnote for this It starts off by saying, a reconciliation of our income tax expense (that's at the bottom) as compared to the tax expense calculated by applying the statutory federal tax rate to income before income taxes, for the years ended 31st December is as follows So I know that this item at the top here, "computed expected income tax rate", that is the statutory federal tax rate and its 34% I also know this is a U.S. Company because the next line item down is state taxes Now here it says state income taxes net of federal benefits and what this is doing, it's actually reducing the 34% tax rate down by 0.7 So the marginal tax rate in this question will be 33.3 So going down to our answer There we have it, 33.3% The next question asks us to calculate the effective tax rate. So that's going to be your tax expense divided by profit before tax We need to go up to the income statement to find that So in the income statement, I'm looking for the tax expense and it's got a slightly different name but it's income tax benefits or provision 261. So that's our tax expense for year 2 I need to divide that by profit before tax And again, slightly different name but here it is, income before income taxes 2,415 Let's put them together and we'll be able to calculate our effective tax rates So income tax 261 Income before income taxes 2,415 I need to divide the 261 by the 2,415 to get to my effective tax rate and there it is 10.8% You might notice that the effective tax rate is lower than the marginal tax rate, which is commonly seen.