Question

On Jan 1, 2017, NSP Corporation, a calendar year, accrual basis C corporation was organized and began business operations. NSP provides network security protection services for businesses. During 2017, it had financial income (per books) before tax of $1,000,000.

The following items were expensed in the arriving at NSP’s 2017 financial income (per books):

-$20,000 of organization costs to organize the corporation; the federal tax amortization amounted to $6,000.

-$20,000 increase to its allowance for doubtful accounts; actual bad debts written off amounted to $5,000.

-$100,000 straight ling financial depreciation; total federal depreciation amounted to $500,000.

-$7,000 life insurance premium paid on a key officer of the corporation.

-$5,000 political contribution maid to a candidate running for a seat in the United States of House of Representatives.

-$20,000 of meals and entertainment expenses.

1) Identify which of NSP’s 2017 items listed above are permanent book/tax differences and which are temporary book/tax differences.

2) What is NSP Corp’s 2017 federal taxable income and federal income tax liability? Please show your work and explain your calculations

Answer 1

	Permanent Book difference means difference exist due to Permant nature expense/ Income booked , due to which no future liability will be arised. However, in Tax diference, difference are arised on tempararily basis, and will be revered in future.
	Part-1
	$20,000 of organization costs to organize the corporation; the federal tax amortization amounted to $6,000 ( It, amortized over the period . Hence Temporary Difference)
	$20,000 increase to its allowance for doubtful accounts; actual bad debts written off amounted to $5,000 ( It will adjusted agianst profit in future. Hence Temporary Difference)
	$100,000 straight ling financial depreciation; total federal depreciation amounted to $500,000 ( Temporary Difference)
	$7,000 life insurance premium paid on a key officer of the corporation: ( It’s not deductible expense , hence Permanent Difference)
	$5,000 political contribution maid to a candidate running for a seat in the United States of House of Representatives:( It’s not deductible expense , hence Permanent Difference)
	$20,000 of meals and entertainment expenses: (Deuction is 50 % allowed for Meal and entertainment expense on the basis of actual incurred. Hence Permanent Difference)
2. Computation of Federal Taxable income and Income Tax Liability
			Remark
	Financial income before tax	$1,000,000.00
Add	Excess Organisation cost expense Booked	$14,000.00	( $20000-$6000)
Add:	Add Excess Provision for debt written back	$15,000.00	( $20000-$5000)
Less:	Depreciation	$400,000.00	( 100000-500000)
	Taxable income	$629,000.00
	Income tax	$213,860.00	113900+(629000-335000)*34%