In 2010,T Corporation changed its tax year from ending each September 30th to ending each December 31st.The corporation earned $25,000 during the period October 1,2010 through December 31,2010.The tax on the annualized income for the short period will be greater than the tax on $25,000 when the tax rates are progressive.

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When a corporation changes its tax year, a short tax year is created. To calculate tax for the short period, the corporation needs to annualize its income. The annualized income is calculated by multiplying the actual income by 12/3 (which is 4, the number of months in the short period) and treating it as if it was earned over a full year. This can result in a higher tax rate because it may push the corporation into a higher tax bracket. Therefore, the tax on the annualized income for the short period will likely be greater than the tax on $25,000 if the tax rates are progressive.

In 2010,T Corporation Changed Its Tax Year from Ending Each