Question

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Assume that a corporation has $100,000 of taxable income from operations plus $5,000 of interest income...

Assume that a corporation has $100,000 of taxable income from operations plus $5,000 of interest income and $10,000 of dividend income. What is the taxable dividends? What is the company's tax liability?

Expert Solution

The taxable dividends = Total dividend income *30%

Where, Total dividend income is $10,000

Therefore

The taxable dividends = $10,000 * 30% = $3,000

Taxable income of the corporation can be calculated in following manner

Taxable income from operations - $100,000

Plus: Interest Income - $5,000

Plus: Taxable Dividends received (30% of total dividend) - $3,000

Taxable Income- $108,000

Now calculate the company’s tax liability (refer the Corporate Tax Rates schedule)

$108,000 falls into the $100,000 to $335,000 tax bracket which has 39% of tax rate

Therefore,

The company’s tax liability = $22,250 + ($108,000 - $100,000) *39%

= $22,250 + $8,000*39%

= $22,250 + $3,120

= $25,370

jeff jeffy answered 2 years ago

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