Question

Marchal Inc., a calendar year, accrual basis taxpayer, made the following state income tax payments during 2019.

March 11 Balance due of 2018 tax $ 13,600

April 2 Estimated 2019 tax payment $ 15,250

June 2 Estimated 2019 tax payment $ 15,250

September 3 Estimated 2019 tax payment $ 15,250

December 2 Estimated 2019 tax payment $ 15,250

On December 28, Marchal's tax department calculated that the corporation's actual 2019 state income tax liability was $67,140. Consequently, Marchal accrued a $6,140 liability for state income tax payable at year end.

a. Compute Marchal's 2019 state income tax expense per books.

b. If Marchal has not adopted the recurring item exception as its method of accounting for state income taxes, compute Marchal's 2019 federal deduction for state income tax.

Answer 1

Marchal Inc., a calendar year accrual basis tax payer make made the following tax payments-

march 11- 13600

april 2- 15250

june 2 - 15250

September 3 -15250

December 28 - 15250

Amongst the above payment , march 11 payment of 13600 will not be considered for computing state income tax purposes since the same is made for the balance due of 2018 and will not be considered for expense of 2019.

The other four payments total amounts to 61000, however the Tax department has calculated the tax liabilty as 67140. Therefore Marchal accrued 6140( 67140-61000) as Liabilty for Tax.

Following the accrual principal of accounting , Marchal's 2019 state income tax expense per books will be $ 67140 as calculated by the tax Authorities.

However,

If Marchal has not adopted the recurring item exception as its method of accounting for state income taxes, then Marchals 2019 federal deduction for state income tax will be $ 60000 . In essence what is paid by the Marchal on its own will be allowed as federal deduction.

Therefore in the first case, answer will be $ 67140; and in the second case the answer willl be $ 61000 only.