Yard Corporation, a cash basis taxpayer, received $10,000 from a customer in 201
ID: 2450487 • Letter: Y
Question
Yard Corporation, a cash basis taxpayer, received $10,000 from a customer in 2014. In 2014, the customer filed a claim for a refund of the fee. In 2015, Yard refunded the customer $6,000. In 2014, Yard paid $5,000 in estimated state income tax. In May 2015, Yard received a state income tax refund of $2,000 for overpayment of its 2014 income tax. Yard was in the 35% marginal tax bracket in 2014 and in the 15% marginal tax bracket in 2015. What are the tax effects of the 2015 payment to the customer and the collection of the state income taxes overpaid?
Explanation / Answer
In 2014 yard paid $5000 in estimated state income tax. Now question is what are the tax effects of the 2015 payment to the customer and the collection of the state income taxes overpaid.
Yard corporation received refund $ 2000.00 for overpayment of 2014 income tax. As per illustration in 2014 yard corporation received $10000 from customer 35% marginal tax bracket on 10000=3500/- but paid $5000. So refund received $2000. But Yard corporation paid refund fees in 2015 $6000. Now Yard Corporation doesn’t need to pay taxes on refunds this year. Refund is tax free and whatever overpaid will get refund.
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