Question

Able Co. has $218,000 in taxable income and Bravo Co has $5,600,000. Supposed both have identified a new project that will increase taxable income by $12,000.

By how much the additional project will increase Able Co.'s taxes?

Answer 1

Able Co. would face an increase in taxes of $2,880 on the additional $12,000 of taxable income as it would be taxed at a marginal rate of 24% according to the IRS tax bracket in which it falls.

Step-by-step explanation:

The student's question pertains to the increase in taxable income for two companies, Able Co. and Bravo Co., and how much additional taxes Able Co. would have to pay for a $12,000 increase in taxable income. To calculate the tax increase for Able Co., we must understand the U.S. income tax code and the marginal tax rates applied to different income brackets.

Assuming that Able Co.'s taxable income increased from $218,000, we need to determine which tax bracket the additional income would fall into. According to the IRS tax tables provided, if a company is already making $218,000, any additional income up to $326,600 would be taxed at a marginal rate of 24%. This means the additional $12,000 income would be taxed at this rate.

Therefore, the increase in Able Co.'s taxes due to the new project would be 24% of $12,000, which equals $2,880.