Soho is a personal service corporation that has $1,200,000 of gross revenue and $1,021,000 of deductible expenses? What is its income tax liability for 2018?

Question

Quizplus · Accepted Answer

To find the income tax liability, we need to first calculate the net income by subtracting deductible expenses from gross revenue: 
$1,200,000 - $1,021,000 = $179,000 
Then, we can use the federal corporate tax rate schedule to determine the income tax liability: 
- The first $50,000 of taxable income is taxed at a rate of 15%: $50,000 x 0.15 = $7,500 
- The next $25,000 of taxable income is taxed at a rate of 25%: $25,000 x 0.25 = $6,250 
- The remaining $104,000 of taxable income (i.e. $179,000 - $50,000 - $25,000) is taxed at a rate of 34%: $104,000 x 0.34 = $35,360 
Adding these amounts together, we get an income tax liability of $49,110. However, since this is a personal service corporation, there is also an additional flat tax rate of 35% on all taxable income above $75,000. In this case, the taxable income above $75,000 is $104,000, so the additional tax liability is: $104,000 x 0.35 = $36,400. Adding this to the previous amount, we get a total income tax liability of $49,110 + $36,400 = $85,510. Rounded to the nearest whole number, this is $37,590.

Soho Is a Personal Service Corporation That Has $1,200,000 of Gross