A corporation’s pretax net income of $1,000,000 is taxable based on 30% of the first $300,000, 35% of the next $300,000, and 40% of the balance:
The company has an open invoice for $100 but then chooses to take the 2% discount offered and pay $98 if paid within 10 days.
To calculate the taxable income for a corporation with pretax net income, you need to apply the tax rates for each portion of the income. Let's break down the calculation step by step:
1. Identify the tax rate for each income bracket:
- The first $300,000 is taxed at a rate of 30%.
- The next $300,000 is taxed at a rate of 35%.
- The remaining balance (anything above $600,000) is taxed at a rate of 40%.
2. Determine the amount of income within each bracket:
- The first $300,000 is fully within the first bracket.
- The next $300,000 is also fully within the second bracket.
- The remaining balance beyond $600,000 falls into the third bracket.
3. Calculate the tax for each bracket:
- For the first bracket, multiply $300,000 by 30% to find the tax owed.
- For the second bracket, multiply $300,000 by 35% to find the tax owed.
- For the third bracket, calculate the amount of income beyond $600,000 and multiply it by 40% to find the tax owed.
4. Add up the results from step 3 to find the total tax owed.
Let's calculate it:
1. Tax rate for the first bracket:
Tax owed = $300,000 * 30% = $90,000
2. Tax rate for the second bracket:
Tax owed = $300,000 * 35% = $105,000
3. Tax rate for the third bracket:
Tax owed = ($1,000,000 - $600,000) * 40% = $160,000
4. Total tax owed:
Total tax = $90,000 + $105,000 + $160,000 = $355,000
Therefore, the corporation's taxable income is $355,000.