Shimmer Inc. is a calendar-year-end, accrual method corporation. This year, it s

Question

Shimmer Inc. is a calendar-year-end, accrual method corporation. This year, it sells the following long-term assets:

Shimmer does not sell any other assets during the year, and its taxable income before these transactions is $893,000.

What are Shimmer's taxable income and tax liability for the year? Use Corporate Tax Rate Table.

Shimmer Inc. is a calendar-year-end, accrual method corporation. This year, it sells the following long-term assets:

Corporate Income Tax Rates Taxable Income Tax $50,000 $50,000-$75,000 $75,000-$100,000 $100,000-$335,000 $335,000-$10,000,000 $10,000,000-$15,000,000 $15,000,000-$18,333,333 Over $18,333,333 15% of the taxable income $7,500 + 25% of taxable income over $50,000 $13,750 + 34% of taxable income over $75,000 $22,250 + 39% of taxable income over $100,000 $113,900 + 34% of taxable income over $335,000 $3,400,000 + 35% of taxable income over $10,000,000 $5,150,000 + 38% of taxable income over $15,000,000 35% of the taxable income

Explanation / Answer

Gain/Loss on the sale of Building:

Sale Value - 670,000

Purchase Value - 653,000

Accumaled Depreciation - 31,000

Current Net value of the Building = 653,000 - 31,000 = 622,000

Hence the Gain/Loss = 670,000 - 622,000 = 48,000 Gain

Gain/Loss on the sale of Sparkle Corporation stock:

Sale Value - 229,000

Purchase Value - 281,000

Accumaled Depreciation - N/A

Hence the Gain/Loss = 229,00 - 281,000 = - 52,000 Loss

Taxable Inome of Shimmer before considering the above is $893,000

Add : Gain on sale of Building $48,000

Less: Loss on sale of Stock $ - 52,000

Loss to be carried forward to future years = 48000 - 52000 = - 4,000

The above loss can be set off in the next future years against the long term gains.

So now the taxable income is $893,000

Tax Liability = It is in the slab of $335,000 - 10,000,000 = $113,900 + 34% of taxable income over $335,000

In this case taxable income over $335,000 = $893,000 - $335,000 = $558,000. Therefore 34% of $558,000 = $189,720.

Hence the total liability = $113,900 + $189,720 = $303,620

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