QUESTION 4 A company earns $500,000 in revenue and has $100,000 in allowable exp

Question

QUESTION 4

A company earns $500,000 in revenue and has $100,000 in allowable expenses & depreciation.

A) What is the State Tax owed using a 9% State Tax Rate?

B) Same problem as above, what is the Federal Tax owed, using the 2016 corporate tax table 12-1, and no limit to state tax deductions:

C) Same problem as above, what is the Combined Incremental tax rate?

The table 12.1 was not provided. You can google the 2016 corporate tax table

https://www.google.com/search?ei=hd9ZW86qHMHUsAXZ2qvYCw&q=2016+corporate+tax+table+&oq=2016+corporate+tax+table+&gs_l=psy-ab.3..0i22i30k1l3.5624.6112.0.6734.4.4.0.0.0.0.79.79.1.1.0....0...1.1.64.psy-ab..3.1.79....0.hxEsmS9eT14

Explanation / Answer

You know Sales less Expenses is Income.

Tax will be leived on our income earned. So,

( Sales - expenses ) = ( $ 500,000-$100,000) = $400,000

So $ 400,000 is the amount on which tax will be leived.

So (400,000 * 9%) = $ 36,000. ( Since you have not mentioned the name of the state so considering 9% and calculated)

b) For the year FY 2016, if the income exceeds or if it is between $ 335,00 to $ 10,000,000 then the tax will be $ 113,900 +34% and amount over is $335,000. So now federal tax for the income of $ 400,000 is

Federal tax rate is $113,900 + 34% ( $ 65,000) = $113,900 + (22,100 )= $136,000.

Calculation for $65,000 = Our income is $ 400,000. So over the amount of $335,000 is $65,000.

C) Calculation of combined tax rate :

Formula used to calculate Combined tax rate is = (100% - federal tax bracket) - state tax bracket

So now, our federal tax bracket is 34% which means (100%-34%) - 9% = 57%.

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