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Assume your new venture, organized as a proprietorship, is in its first year of operation. You expect to have taxable income of $50,000. Use the income tax rate information contained in Figure 3.6 to estimate the amount of income taxes you would have to pay. Requirement: If your venture had been organized as a standard corporation instead of a proprietorship, calculate your income tax liability.

Assume your new venture, organized as a proprietorship, is in its first year of operation. You expect to have taxable income of $50,000. Use the income tax rate information contained in Figure 3.6 to estimate the amount of income taxes you would have to pay. Requirement: If your venture had been organized as a standard corporation instead of a proprietorship, calculate your income tax liability.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Assume your new venture, organized as a proprietorship, is in its first year of operation. You expect to have taxable income of $50,000. Use the income tax rate information contained in Figure 3.6 to estimate the amount of income taxes you would have to pay.

Requirement:
If your venture had been organized as a standard corporation instead of a proprietorship, calculate your income tax liability.

FIGURE 3.6 2018 Personal and 2018/2017 Corporate Federal Income Tax Rates PANEL A: 2018 CORPORATE FLAT TAX RATE TAXABLE INCOME: Taxed at a Flat Rate of 21% OVER- 0 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 OVER- TAXABLE INCOME PANEL B: 2017 CORPORATE MARGINAL INCOME TAX RATES TAXABLE INCOME BUT NOT OVER- BUT NOT OVER- 15% 25% 34% 9,525 38,700 82,500 PANEL C: 2018 PERSONAL MARGINAL INCOME TAX RATES SINGLE Chapter 3 Organizing and Financing a New Venture 157,500 200,000 500,000 CORPORATE MARGINAL TAX RATE X 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 0 9,525 38,700 82,500 157,500 200,000 500,000 Source: Internal Revenue Service, http://www.IRS.gov. X X MARGINAL TAX RATE 10% 12% 22% 24% 32% 35% 37% INCOME $ 50,000 25,000 25,000 $100.000 MARGINAL TAX RATE 0 19,050 77,400 165,000 315,000 400,000 600,000 CORPORATE TAXABLE MARRIED FILING JOINTLY TAXABLE INCOME OVER- BUT NOT OVER- Let's illustrate the tax liability for a corporation with a taxable income of $100,000. Based on Panel B in Figure 3.6, the marginal tax rate, which is the rate paid on the last dollar of income, would have been 34 percent. The average tax rate would have been calculated as the total tax liability divided by the dollar amount of taxable income as follows: 15% 25% 34% 39% 34% 35% 38% 35% 19,050 77,400 165,000 315,000 400,000 600,000 = MARGINAL TAX RATE 10% 12% 22% 24% 32% 35% 37% CORPORATE AMOUNT OF TAXES $ 7,500 6,250 8,500 $22.250 101 Copyright 20121 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Transcribed Image Text:FIGURE 3.6 2018 Personal and 2018/2017 Corporate Federal Income Tax Rates PANEL A: 2018 CORPORATE FLAT TAX RATE TAXABLE INCOME: Taxed at a Flat Rate of 21% OVER- 0 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 OVER- TAXABLE INCOME PANEL B: 2017 CORPORATE MARGINAL INCOME TAX RATES TAXABLE INCOME BUT NOT OVER- BUT NOT OVER- 15% 25% 34% 9,525 38,700 82,500 PANEL C: 2018 PERSONAL MARGINAL INCOME TAX RATES SINGLE Chapter 3 Organizing and Financing a New Venture 157,500 200,000 500,000 CORPORATE MARGINAL TAX RATE X 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 0 9,525 38,700 82,500 157,500 200,000 500,000 Source: Internal Revenue Service, http://www.IRS.gov. X X MARGINAL TAX RATE 10% 12% 22% 24% 32% 35% 37% INCOME $ 50,000 25,000 25,000 $100.000 MARGINAL TAX RATE 0 19,050 77,400 165,000 315,000 400,000 600,000 CORPORATE TAXABLE MARRIED FILING JOINTLY TAXABLE INCOME OVER- BUT NOT OVER- Let's illustrate the tax liability for a corporation with a taxable income of $100,000. Based on Panel B in Figure 3.6, the marginal tax rate, which is the rate paid on the last dollar of income, would have been 34 percent. The average tax rate would have been calculated as the total tax liability divided by the dollar amount of taxable income as follows: 15% 25% 34% 39% 34% 35% 38% 35% 19,050 77,400 165,000 315,000 400,000 600,000 = MARGINAL TAX RATE 10% 12% 22% 24% 32% 35% 37% CORPORATE AMOUNT OF TAXES $ 7,500 6,250 8,500 $22.250 101 Copyright 20121 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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