This year, Sutton Corporation's before-tax income was $2,000,000. It paid $175,000 income tax to Nebraska and $300,000 income tax to Iowa. Compute Sutton's federal income tax.

Question

Quizplus · Accepted Answer

To compute the federal income tax, we need to first subtract the state income taxes paid from the before-tax income:

$2,000,000 - $175,000 (Nebraska) - $300,000 (Iowa) = $1,525,000

Using the 2021 corporate tax rate schedule, this amount falls into the bracket of taxable income between $1,000,000 and $2,500,000. The tax on this amount is:

$321,500 + 24% of the amount over $1,000,000

$1,525,000 - $1,000,000 = $525,000

$321,500 + (0.24 x $525,000) = $444,500

Therefore, Sutton Corporation's federal income tax is $444,500.

This Year, Sutton Corporation's Before-Tax Income Was $2,000,000