Corporate Taxes

QUESTION

Hunt Taxidermy, Inc. is concerned about the taxes paid by the company in 2008. In addition to $33.50 million of taxable income, the firm received $1,850,000 of interest on state-issued bonds and $570,000 of dividends on common stock it owns in Hunt Taxidermy, Inc.(Use Table 2.3)

Calculate Hunt Taxidermys tax liability, average tax rate, and marginal tax rate. (Enter your answer in dollars not in millions. Round your answer to the nearest dollar amount. Omit the “$” and “%” signs in your response.)
In this case, interest on the state-issued bonds is not taxable and should not be included in taxable income. Further, the first 70 percent of the dividends received from Hunt Taxidermy is not taxable. Thus, only 30 percent of the dividends received are taxed, so: Taxable income = $33,500,000 + (.3)570,000 = $33,671,000 Now Hunt Taxidermys tax liability will be: Tax liability = $6,416,667 + .35 ($33,671,000 $18,333,333) = $11,784,850 The $570,000 of dividend income increased Hunt

idermys tax liability by $59,850 (= (.3) x $570,000 x (.35)). Hunt Taxidermys resulting average tax rate is now: Average tax rage = $11,784,850/$33,671,000 = 35.00% Finally, if Hunt Taxidermy earned $1 more of taxable income, it would still pay 35 cents (based upon its marginal tax rate of 35 percent) more in taxes.

ANSWER:

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