1. For a particular year, a company has gross annual income of $780,000, annual expenses of $270,000, and allowed depreciation of $60,000. The company is located in a state where the first $200,000 corporate income is tax-free, and any income above that is taxed at a State flat rate of 5%.
a. What is the net cash flow after taxes for the year?
b. What is the company’s federal tax rate?
c. What is the company’s combined (state and federal) tax rate?
d. What is the company’s average state tax rate?
a. Net Cash = 780,000 - 270,000 - 60,000 - 0.05(780,000-200,000) = $421,000.
a. To find the net cash flow after taxes for the year, we need to calculate the taxable income first.
Taxable income = Gross annual income - Annual expenses - Depreciation
= $780,000 - $270,000 - $60,000
= $450,000
Next, we need to calculate the amount of income that is subject to state taxes.
Taxable state income = Taxable income - Tax-free income threshold
= $450,000 - $200,000
= $250,000
Now, we can calculate the state taxes.
State taxes = Taxable state income * State flat rate
= $250,000 * 0.05
= $12,500
Finally, we can calculate the net cash flow after taxes.
Net cash flow after taxes = Gross annual income - Annual expenses - Depreciation - State taxes
= $780,000 - $270,000 - $60,000 - $12,500
= $437,500
Therefore, the net cash flow after taxes for the year is $437,500.
b. To determine the company's federal tax rate, we need to know the federal tax bracket the company falls into based on its taxable income. More information is needed to accurately determine the federal tax rate.
c. To calculate the company's combined tax rate, we need to add the state tax rate to the federal tax rate. Since the federal tax rate is not provided, we cannot determine the combined tax rate at this time.
d. The average state tax rate can be calculated by dividing the state taxes by the taxable state income and multiplying by 100%.
Average state tax rate = (State taxes / Taxable state income) * 100%
= ($12,500 / $250,000) * 100%
= 5%
Therefore, the company's average state tax rate is 5%.