Question

Cranberry Corporation has $3,444,000 of current year taxable income. Use Corporate tax rate schedule.

If the current year is a calendar year ending on December 31, 2017, calculate Cranberry's regular income tax liability.

If the current year is a calendar year ending on December 31, 2018, calculate Cranberry’s regular income tax liability.

If the current year is a fiscal year ending on April 30, 2018, calculate Cranberry's regular income tax liability. (Do not round intermediate calculations.)

Answer 1

Corporate tax rate schedule(2005-2017)

Over	But not over	Tax is	Of amount over
$0	$50,000	15%	$0
50,000	75,000	$7,500 + 25%	50,000
75,000	100,000	13,750 + 34%	75,000
100,000	335,000	22,250 + 39%	100,000
335,000	10,000,000	113,900 + 34%	335,000
10,000,000	15,000,000	3,400,000 + 35%	10,000,000
15,000,000	18,333,333	5,150,000 + 38%	15,000,000
18,333,333	____	35%	0

If the current year is a calendar year ending on december 31,2017, calculate cramberry's regular income tax liability.

As per above schedule upto $3,35,000 taxable income the tax laibility would be $1,13,900. And balance $31,09,000(34,44,000-3,35,000), the taxable income comes at the rate of 34%. so the net tax laibility on balance taxable income should be 10,57,060 (31,09,000*34%).

Thus the the total tax laibility on taxable income of 34,44,000 is 11,70,960(10,57,060+1,13,900).

If the current year is a calender year ending on december 31, 2018, calculate cranberry's regular income tax liability.

After the passage of the tax cuts and jobs Act, on December 20, 2017 the corporate tax rate has been changed to flat 21%, starting 1, january 2018.

Thus the net taxable laibility on taxable income of 34,44,000 is 7,23,240 (3444000*21%).

If the current year is a fiscal year ending on April 30, 2018, calculate cranberry's regular income tax liability.

The IRS has released Notice 2018-38, explaining how to apply the blended rate under section 15 of the Tax Code, as well as news release IR-2018-99, conveying the basic message that for Affected Fiscal Years, the blended rate applies in lieu of either the new 21 percent rate or the tax rate applicable under old law.

Blended rate tax calculation

The blended rate calculation first requires computation of taxable income based on the law governing income and deduction items in effect for the corporation’s entire Affected Fiscal Year. The blended tax rate applicable to this taxable income amount is based on the ratio of (1) the number of days in the tax year before Jan. 1, 2018 to and (2) the number of days in the tax year after Dec. 31, 2017.

So as per above rule the tax laibility would be determined at the ratio of 245:120

the taxable income of 34,44,000 is divided into 23,11,726:11,32,274

the net tax of income befor 31/Dec/2017 is as per Corporate tax schedule is

= 672086.8 (1976726*34%) + 1,13,900

= 7,85,986.8

the net tax of income after 31/Dec/2017 is as per corporate tax rate of flat 21%

= 11,32,274*21%

= 2,37,777.54

The net total tax laibility for the taxable income of $34,44,000 for the fiscal year ended April 30, 2018 is $10,23,764.34 (7,85,986.8+2,37,777.54).