Question

In: Economics

Consider a corporation whose taxable income without state income tax is                               &n

Consider a corporation whose taxable income without state income tax is

                                                                                                                                                                                                                                                                                             

Gross revenue

​$3,800,000

All expenses

​$1,600,000

If the marginal federal tax rate is​ 35% and the marginal state rate is​ 5%, compute the combined state and federal taxes using the two methods.

State taxable income is ​$_________. ​(Round to the nearest​ dollar.)

State income tax is ​$_________. ​(Round to the nearest​ dollar.)

Federal taxable income is ​$____________. ​(Round to the nearest​ dollar.)

Federal income tax is ​$__________. ​(Round to the nearest​ dollar.)

Combined state and federal tax is ​$_________. ​(Round to the nearest​ dollar.)

Combined tax rate is _____​%. ​(Round to two decimal​ places.)

Combined state and federal tax using combined tax rate is ​$___________. ​(Round to the nearest​ dollar.)

Solutions

Expert Solution

Answer-

State taxable income = Gross revenue – All expenses

                                    = 3,600,000 – 1,600,000

                                    = $2,000,000

State income tax = State taxable income × State tax rate

                            = 2,000,000 × 5%

                            = $100,000

Federal taxable income = State taxable income – State income tax

                                    = 2,000,000 – 100,000

                                    = $1,900,000

Federal income tax = Federal taxable income × Federal tax rate

                                = 1,900,000 × 35%

                                = $665,000

Combined state and federal tax = State income tax + Federal income tax

                                                    = 100,000 + 665,000

                                                    = $765,000

Combined tax rate = 35% + 5% = 40%

Combined state and federal tax using combined tax rate = Taxable income × Tax rate

                                                                                           = 2,000,000 × 40%

                                                                                           = $800,000

Rahul Sunny answered 2 years ago
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