Perez Corporation is subject to tax only in State A.Perez generated the following income and deductions. Federal taxable income is the starting point in computing A taxable income.State income taxes are not deductible for A tax purposes.Perez's A taxable income is:

Question

Perez Corporation is subject to tax only in State A.Perez generated the following income and deductions.  Federal taxable income is the starting point in computing A taxable income.State income taxes are not deductible for A tax purposes.Perez's A taxable income is:

Quizplus · Accepted Answer

Since Perez is only subject to tax in State A, we can assume that all income and deductions are relevant for A tax purposes. Therefore, the federal taxable income of $500,000 must be adjusted for state income taxes, which are not deductible for A tax purposes. The question does not provide the amount of state income taxes paid, so we must assume that Perez paid the average state income tax rate. Using this assumption, we can calculate Perez's A taxable income as follows:

Federal taxable income = $500,000 
State income tax deduction = ($25,000)  (assuming an average state tax rate of 5%) 
A taxable income = $475,000

Therefore, the correct answer is B: $450,000.

Perez Corporation Is Subject to Tax Only in State A Generated