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1. A corporation with a taxable income of $50 million is considering a new venture that would generate an additional $500,000 per year in taxable income. How much additional federal income tax will they pay on this additional income?

2. Susan has a marginal federal income tax rate of 28% and a marginal state income tax rate of 9%. If she earns an additional $4,000 job by working overtime, how much additional cash will she have after taxes?

3. A business purchases some equipment for $10,000 and depreciates it over a 5-year period using straight-line depreciation. The salvage value at the end of Year 5 is $2,000. What is the depreciation charge for Year 3?

4. The company described in the previous question has a marginal federal tax rate of 35%. Compute the reduction in their federal income tax during Year 3 due to that year's deprecation on the equipment.

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Collen Von
Collen VonLv2
29 Sep 2019
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Related questions

1.Which of the following statements about conversion of income is correct?

a.

converting ordinary income into capital gain is a beneficial tax planning strategy
b.

converting capital gain income into ordinary income is a beneficial tax planning strategy
c.

converting qualifying dividends into interest income is a beneficial tax planning strategy
d.

holding assets that will generate a capital gain inside a retirement plan is a beneficial tax planning strategy

2. Which of the following statements is NOT a true statement regarding long-term capital assets?

a.

capital assets that are held for more than one year are treated as long-term
b.

no distinction is made between capital losses and ordinary losses
c.

with few exceptions, the maximum capital gains tax rate is 15%

the benefit of holding a capital asset long enough to garner long-term capital gain treatment must be weighed against the financial risk associated with a possible decline in value during the holding period

3. Which of the following statements about the taxation of dividends is correct?

a.

all dividends are taxed at the same rate as applicable to capital gains
b.

dividends paid by credit unions and mutual insurance companies qualify for the lower tax rate
c.

qualifying dividends are taxed at a maximum 15% rate

d. there is no tax benefit to changing some of an individual's funds from a lower-yielding fixed income investment into a dividend-paying stock

4. Which of the following is an advantage of making an IRC Section 83(b) election with respect to restricted stock?

a.

an 83(b) election can be made any time within the tax year of the transfer of shares from the company to the employee
b.

if the stock is forfeited, the compensation recognized and the taxes paid are deductible as losses
c.

any future appreciation would be taxed as capital gain instead of taxable compensation

d. the employee does not receive any cash at the time of the stock award to pay the tax on the compensation recognized under the election

5.The maximum alternative minimum tax rate for individuals is:

a.

less than the maximum regular federal income tax rate for individuals
b.

equal to the maximum regular federal income tax rate for individuals
c.

greater than the maximum regular federal income tax rate for individuals

d. going to decrease each year by 1% until it reaches 20% in 2010

6. How is alternative minimum taxable income (AMTI) for individuals computed?

a.

AMTI = taxable income + adjustments + preferences - exemptions
b.

AMTI = taxable income - adjustments + preferences - exemptions
c.

AMTI = taxable income +/- adjustments + preferences - exemption
.

d. AMTI = taxable income +/- adjustments - preferences - exemptions

7. Which of the following statements regarding the calculation of alternative minimum taxable income (AMTI) for corporations versus the calculation of AMTI for individuals is accurate?

a.

AMTI is calculated the same for both corporations and individuals
b.

an additional step is required for corporations based on their adjusted current earnings
c.

the exemption amount for corporations is not subject to phaseout to phaseout while the exemption amounts for individuals are
d.

thethere is no adjustments to taxable income for corporations, only preferences

Sandra would like to organize BAL as either an LLC (taxed as asole proprietorship) or a C corporation. In either form, the entityis expected to generate an 12 percent annual before-tax return on a$560,000 investment. Sandra’s marginal income tax rate is 37percent and her tax rate on dividends and capital gains is 23.8percent (including the 3.8 percent net investment income tax). IfSandra organizes BAL as an LLC, she will be required to pay anadditional 2.9 percent for self-employment tax and an additional0.9 percent for the additional Medicare tax. BAL’s income is notqualified business income (QBI) so Sandra is not allowed to claimthe QBI deduction. Assume that BAL will distribute all of itsafter-tax earnings every year as a dividend if it is formed as a Ccorporation. (Round your intermediate computations to the nearestwhole dollar amount.)

a. How much cash after taxes would Sandrareceive from her investment in the first year if BAL is organizedas either an LLC or a C corporation?

b. What is the overall tax rate on BAL’s incomein the first year if BAL is organized as an LLC or as a Ccorporation? (Round your final answers to 2 decimalplaces.)

(Calculating free cash flows) Vandelay Industries is considering a new project with a 4-year life with the following cost and revenue data. This project will require an investment of $140,000 in new equipment. This new equipment will be depreciated down to zero over 4 years using the simplified straight-line method and has no salvage value. This new project will generate additional sales revenue of $112,000 while additional operating costs, excluding depreciation, will be $68,000. Vandelay's marginal tax rate is 35 percent. What is the project's free cash flow in year 1?

Please help by writing out formulas so I can better understand how to set up the equations for future problems. Thank you for your help.

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