Lilikoi Corporation began business in 2009. Lilikoi earned taxable income of $40

Question

Lilikoi Corporation began business in 2009. Lilikoi earned taxable income of $40,000 in 2009 and $120,000 in 2010. For 2011, Lilikoi Corporation has a net operating loss of $50,000 and decides to carry the loss back, filing a refund claim. Compute the amount of corporate income tax that Lilikoi paid for 2009 and 2010 and then determine the amount of tax that will be refunded from carrying back the 2011 NOL.

Solution:

Lilikoi paid $6,000 tax for 2009 and $30,050 tax for 2010. Lilikoi will have a refund of $9,900 from carrying back $40,000 of the 2011 loss to 2009 and $10,000 of the loss to 2010.

Tax paid for 2009 on $40,000 was $40,000 x 15% = $6,000

Tax paid for 2010 on $120,000 was ($50,000 x 15%) + ($25,000 x 25%) + ($25,000 x 34%) + ($20,000 x 39%) = $30,050

Tax refund from 2011 loss is ($40,000 x 15%) + ($10,000 x 39%) = $9,900

HOW DID THEY FOUND THE 25,000 FOR 25%;   25,000 FOR 34% AND 50,000FOR 15%. Please show process how to do calculations.

I found the $20,000 by subtracting 120,000 -100,000.

CORPORATE TAX RATES

0- $50,000 15%

$50,001- $75,000 25%

$75,001- $100,000 34%

$100,001- $335,000 39%

Explanation / Answer

The Income for 2010 of $120,000 is subject to tax based on the slab rates given.

The Income is split into four slabs, for charging the tax, as follows.

First slab - $0     to       50000, carrying a tax rate of 15%,

Second slab - $50,001 to 75,000, carrying a tax rate of 25%

Third slab - $75,001 to 100,000, carrying a tax rate of 34% and

Fourth slab - $100,001 to 335,000, carrying a tax rate of 39%.

Accordingly tax is calculated as below:

For the 1st $50,000 of the Income(of $120,000) the rate is 15% -- tax is 15% of 50000 = 7,500

On the next 25000 of the income (of$120,000) the rate is 25% - for the income between 50,001 and 75,000

                                                                                                                            = tax is 6,250

On the next 25000 = 34%, tax being 8,500 and

On the next 20000 = 39%., tax being 7,800

Total tax for 2010 = $30,050

Carrying back the NOL is allowed for two years. This has the effect of reducing the income of those years for working out the refund.

Accordingly

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