Corporation Growth has $84,000 in taxable income, and Corporation Income has $8,
ID: 2650208 • Letter: C
Question
Corporation Growth has $84,000 in taxable income, and Corporation Income has $8,400,000 in taxable income. Use the tax rates from Table below
Suppose both firms have identified a new project that will increase taxable income by $13,000. How much in additional taxes will each firm pay?
$0-$50,000---15%
$50,001-$75,000---25%
$75,001---$100,000---34%
$100,001-$335,000---39%
335,001--10,000,000--34%
10,000,001--15,000,000---35%
Corporation Growth has $84,000 in taxable income, and Corporation Income has $8,400,000 in taxable income. Use the tax rates from Table below
Explanation / Answer
In order to calculate the tax bill, we first need to divide the taxable income of the respective firms in the tax brackets provided in a progressive fashion.
Part a
Corporation Growth, taxable income = $84,000
According to the tax brackets:
$50000 will fall in $0 - $50,000 - tax of 15% would be applied. Hence tax = $7500
Over $50,000, $25000 will fall in $50,000 - $75,000 - tax of 25% would be applied. Hence tax = $6250
Over $75,000, $9000 will fall in $75,000 - $100,000 - tax of 34% would be applied. Hence tax = $3060
Total tax liability = $7500 + $6250 + $3060 = $16,810 --> Corporation Growth
Corporation Income, taxable income = $8,400,000
According to the tax brackets:
$50000 will fall in $0 - $50,000 - tax of 15% would be applied. Hence tax = $7500
Over $50,000, $25000 will fall in $50,000 - $75,000 - tax of 25% would be applied. Hence tax = $6250
Over $75,000, $25000 will fall in $75,000 - $100,000 - tax of 34% would be applied. Hence tax = $8500
Over $100,000, $235,000 will fall in $100,000 - $335,000 - tax of 39% would be applied. Hence tax = $91,650
Over 335,000 remaining income of $8,065,000 would fall in 34% bracket. hence tax = $2,742,100
Total tax liability = $7500 + $6250 + $8500 + $91,650 + $2,742,100 = $2,856,000 --> Tax Liability of Corp. Income
b) In case of $13,000 extra income,
For corp. growth, it will fall in 34% bracket and would lead to an additional tax liability of $13000 * 34% = $4,420
For corp. income also, it will fall in 34% bracket and would lead to an additional tax liability of $13000 * 34% = $4,420
for Corporation Growth
Total tax liability = $7500 + $6250 + $3060 = $13,620 --> Corporation Growth