Chapter 26 Tax Practice and Ethics 32. LO.6 Kold Services Corporation estimates

Question

Chapter 26 Tax Practice and Ethics

32. LO.6 Kold Services Corporation estimates that its 2017 taxable income will be $500,000. Thus, it is subject to a flat 34% income tax rate and incurs a $170,000 liability. For each of the following independent cases, compute Kold's minimum quarterly estimated tax payments that will avoid an underpayment penalty.

a. For 2016, taxable income was ($200,000). Kold carried back all of this loss to prior years and exhausted the entire net operating loss in creating a zero 2016 liability.

b. For 2016, taxable income was $450,000, and tax liability was $153,000.

c. For 2015, taxable income was $2 million, and tax liability was $680,000. For 2016, taxable income was $400,000, and tax liability was $136,000.

Explanation / Answer

KOLD SERVICES CORPORATION Computation of Tax for each quarter (assuming corporation following calendar year) Quarters Cases Particulars I II III IV Total Tax Liability Case a.) Tax amount 42500 42500 42500 42500 170000 Case b.) Tax amount 38250 38250 38250 38250 153000 Lower of Rs.153000 or Rs.170000 i.e.153000 Case c.) Tax amount 34000 45333 45333 45334 170000 Lower of Rs.136000 or Rs.170000 i.e.136000

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