Morton Inc. is a Kansas corporation engaged exclusively in domestic manufacturing. In 2013, it earned $500,000 of qualified production income, which also equals its taxable income before the domestic manufacturing deduction. It paid compensation of $200,000 to its workforce. Calculate Morton's 2013 domestic production activities deduction and taxable income:

Question

Quizplus · Accepted Answer

The domestic production activities deduction for Morton Inc. can be calculated as follows: 
9% x ($500,000 - $200,000) = $27,000 (for the first $250,000 of qualified production income)
+ 6% x ($500,000 - $250,000) = $18,000 (for the next $250,000 of qualified production income)
Total deduction = $45,000
Therefore, Morton's taxable income will be $500,000 - $45,000 = $455,000. Choice A is the correct answer.