Corporate Taxes The Carolina Corporation had a 2013 taxable income of $3,000,000 from operations after all operating costs but before
(1)interest charges of $500,000,
(2)dividends received of $75,000,
(3)dividends paid of $1,000,000,and
(4)income taxes.
Using the tax schedule in Table 2.3,what is Carolina's income tax liability?
What are Carolina's average and marginal tax rates on taxable income from operations?

Question

Quizplus · Accepted Answer

From the information given, taxable income after all operating costs but before interest charges, dividends received and dividends paid is $3,000,000. Therefore, taxable income for Carolina Corporation is:

Taxable income = $3,000,000 - $500,000 + $75,000 - $1,000,000 = $1,575,000

Using the tax schedule in Table 2.3, Carolina Corporation's income tax liability is:

$22,250 + 25% of taxable income over $75,000
= $22,250 + 25% * ($1,575,000 - $75,000)
= $22,250 + $375,000
= $397,250

The average tax rate is calculated as the total tax liability divided by taxable income from operations:

Average tax rate = $397,250 / $3,000,000
= 0.1324 or 13.24%

The marginal tax rate is the tax rate on the next dollar of taxable income. For the Carolina Corporation, this is the top marginal tax rate of 34%.

Therefore, the answer is A) $857,650, 28.59%, 34%, respectively.

Corporate Taxes the Carolina Corporation Had a 2013 Taxable Income