Two unrelated,calendar year C corporations have the following taxable income for the current year:
Olive Corporation
Magenta Corporation
Taxable income
$70,000
$90,000

Magenta Corporation is a qualified personal service corporation.Based on these facts,their corporate tax liability is:

Question

Two unrelated,calendar year C corporations have the following taxable income for the current year:
Olive Corporation
Magenta Corporation
Taxable income
$70,000
$90,000
​
Magenta Corporation is a qualified personal service corporation.Based on these facts,their corporate tax liability is:

Quizplus · Accepted Answer

The tax liability for Olive Corporation, which is not a personal service corporation, can be calculated as follows:
- For the first $50,000 of taxable income, the corporate tax rate is 15%. Therefore, Olive Corporation owes $7,500 ($50,000 x 15%).
- For the remaining $20,000 of taxable income, the corporate tax rate is 25%. Therefore, Olive Corporation owes $5,000 ($20,000 x 25%).
So, the total tax liability for Olive Corporation is $12,500 ($7,500 + $5,000).

For Magenta Corporation, which is a qualified personal service corporation, the tax liability is different. Personal service corporations are subject to a flat tax rate of 35% on their taxable income. So, Magenta Corporation owes $31,500 ($90,000 x 35%).

Therefore, the total tax liability for both corporations is $44,000 ($12,500 + $31,500). The only answer that matches this total is option D.

Two Unrelated,calendar Year C Corporations Have the Following Taxable Income