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On January 1, 2018, Hire Now Corporation, a calendar year, accrual basis C corporation was organized...

On January 1, 2018, Hire Now Corporation, a calendar year, accrual basis C corporation was organized and began business operations. Hire Now provides HR consulting services for businesses. During 2018, it had financial income (per books) before tax of $3,000,000.

The following items were expensed in arriving at Hire Now’s 2018 financial income (per books):

·        $200,000 straight-line financial depreciation; total federal tax depreciation amounted to $900,000.

·        $30,000 increase to its allowance for doubtful accounts; actual bad debts written off amounted to $9,000.

·        $20,000 of qualifying meals and entertainment expenses.

·        $3,000 fine for filing its articles of incorporation late with the Secretary of State.

What is Hire Now Corporation’s 2018 federal taxable income and federal income tax liability? Please show your work and explain your calculations. Also, identify any book/tax differences as permanent differences or temporary differences.

Solutions

Expert Solution

Hire corporation's federal taxable income:-

Particulars Amount
Income as per books 3,000,000
Depreciation (Depreciation as per books added back, and federal depreciation deducted) +200,000-900,000 (700,000)
Bad Debts (Allowance for doubtful debts deducted as per books, so the same is added back and as per IRS, actual bad debt written off deducted) +30,000-9,000 21,000
Qualifying meals and entertainment expenses (As per IRS, only 50% allowed) +20,000-10,000 10,000
Late fee for filing articles of incorporation (Late fee/penalty not allowed to be deducted as per IRS) 3,000
Federal Taxable Income 2,334,000

Taxable Liability = $490,140 (2,334,000 * 21%)

The new corporate tax rate is 21 percent.

Permanent Differences:

Qualifying meals and entertainment expenses = $10,000

Late filing fee for articles of incorporation = $3,000

Temporary Differences:

Depreciation - $700,000

Allowance for doubtful debts = $21,000

ekkarill92 answered 1 year ago
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