DEF Corporation and MNO Corporation are both C corporations.To date,DEF has earned $100,000 of taxable income,and MNO has earned $1,000,000.Each corporation expects to earn another $100,000 of taxable income before year-end.DEF will pay more tax on its incremental $100,000 of taxable income than will MNO.

Question

Quizplus · Accepted Answer

On its incremental $100,000 of income,DEF will pay tax at the rate of 34% on its incremental $100,000 of income,plus a 5% surtax,resulting in a 39% marginal rate.MNO will also pay income tax at the rate of 34% on its $100,000 of incremental income,but it is not subject to the 5% surtax because its taxable income exceeds $335,000.

DEF Corporation and MNO Corporation Are Both C Corporations