Mrs. Ford, who has a 39.6% marginal tax rate, is the sole shareholder and CEO of Fast Inc. She also holds a $1 million interest-bearing note issued by Fast. The corporation's Compute Fast's taxable income.

Question

Mrs. Ford, who has a 39.6% marginal tax rate, is the sole shareholder and CEO of Fast Inc. She also holds a $1 million interest-bearing note issued by Fast. The corporation's  Compute Fast's taxable income.

Quizplus · Accepted Answer

To compute Fast's taxable income, we need to start with its pre-tax income, which includes the interest income received from the $1 million interest-bearing note issued to Mrs. Ford.

Let's assume that Fast earned $3.2 million in pre-tax income for the year. Mrs. Ford's interest income would be $1 million, which leaves $2.2 million in pre-tax income for Fast.

Next, we need to deduct Fast's deductible expenses, such as salaries, rent, depreciation, and interest paid on any loans. Let's assume that Fast had $1.2 million in deductible expenses for the year.

This leaves Fast with $1 million in taxable income ($2.2 million - $1.2 million). Mrs. Ford's marginal tax rate is 39.6%, so Fast's tax liability would be $396,000 ($1 million x 39.6%).

Adding the tax liability back to Fast's taxable income gives us a total income tax expense of $1,641,000 ($1,245,000 + $396,000).

Mrs Ford, Who Has a 39