Laura Corporation changed its tax year-end from July 31st to December 31st in 2016. The income for the period August 1, 2016 through December 31, 2016 was $35,000. The corporate tax rate is 15% on the first $50,000 of income, 25% on income from $50,001 to $75,000, and 34% on income from $75,001 to $100,000. A portion of Laura's June - December 2016 income will be taxed at 34%.

Question

Quizplus · Accepted Answer

Since Laura Corporation changed its tax year-end in 2016, it will have a short tax year from August 1, 2016, to December 31, 2016. The income for this period is $35,000, which falls in the bracket of income from $0 to $50,000 and is therefore taxed at 15%. However, since a portion of this income will be taxed at 34%, it must mean that Laura Corporation had income from $75,001 to $100,000 during its previous tax year, which was from August 1, 2015, to July 31, 2016, and it will be taxed at the same rate for that portion of income earned in June and July 2016. Therefore, the answer is true.

Laura Corporation Changed Its Tax Year-End from July 31st to December