When calculating your net taavie ic Explain with an example Problem 3: (25 point

Question

When calculating your net taavie ic Explain with an example Problem 3: (25 points Your regular business has a annual taxable income of $65000. You are investing in concrete mixing business which requires a concrete truck. The truck costs $47000 with initial set up cost of $2000. The truck requires annual operational expenses of $700. The expected revenue from the truck is $32,000 per year. The salvage value of the truck at the end of its useful life of 10 years is $12,000. You are allowed 200 percent double declining balance depreciation (Use table 5-6 for depreciation rates). Calculate your marginal and incremental income taxes for first two years with both the businesses. To solve this problem you may use the template provided on the next page

Explanation / Answer

showing the calculation for marginal income tax due to truck as per your data provided

the marginal tax on year 1 on income of truck is $ 7310 and year 2 is $5310.8 taking 34% as tax rate

year 1 year 2 without truck with truck Marginal amount without truck with truck Marginal amount annual taxable income with business 65000 65000 65000 65000 additional revenue from truck 32000 32000 32000 32000 Total revenue 65000 97000 32000 65000 97000 32000 less MARCS depreciation 9800 9800 15680 15680 additional annual operating cost 700 700 700 700 Total expenses 0 10500 10500 0 16380 16380 Net income income on tax applicable 65000 86500 21500 65000 80620 15620 tax rate @34% 22100 29410 7310 22100 27410.8 5310.8

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