Question

Topham, Inc. has pretax income of $100,000 for the current year. Included in that amount is $3,000 of tax-exempt income, $8,000 of meals expenses, and $10,000 of depreciation expense (depreciation is $15,000 under tax rules). Topham also paid $21,000 in estimated income tax payments during the year. After adjusting for permanent items (only), Topham's taxable income is:

Answer 1

Topham's taxable income is $78,000.

Step-by-step explanation:

Taxable income is calculated by adjusting the total income for permanent items that affect the tax liability. In this case, the tax-exempt income of $3,000 is excluded from taxable income. The meals expenses of $8,000 are not deductible for tax purposes, and the depreciation expense of $15,000 is adjusted to the tax rules depreciation of $10,000. The estimated income tax payments of $21,000 are subtracted from the taxable income.

Therefore, Topham's taxable income can be calculated as follows:

Taxable income = Pretax income - Tax-exempt income - Non-deductible expenses + Adjusted depreciation - Estimated income tax payments

Taxable income = $100,000 - $3,000 - $8,000 + $10,000 - $21,000 = $78,000