Question

Tony works as an accountant for a US-based manufacturing business. He is calculating the tax liability for his business for the previous financial year. The company’s profits for the previous financial year amount to $250,000. Which is the correct amount of corporate income tax that the business is liable to pay?

Answer 1

97,750

Step-by-step explanation:

39.1% of 250,000

Answer 2

The company is liable to pay a corporate income tax of $52,500

Step-by-step explanation:

A tax liability is the amount of tax owed by an individual or company to the state. The taxes are used for the running of government. The amount of tax to be paid by different entities usually varies. Corporate income tax is the amount of tax usually assigned to the firm's profits. In United States, the corporate income tax is 21% that was reduced from 35% in 2017. In our case, the amount of corporate income tax that the company that Tony's business can be determined as follows;

Step 1: Express income tax as a function of Profit

The income tax can be expressed using the equation;

I=R×P

where;

I=income tax

R=corporate tax rate

P=profits

This can otherwise also be expressed as;

Income tax=corporate tax rate×profits

In our case;

Income tax (I)=unknown

Corporate tax rate (r)=21%

Company profits=$250,000

replacing;

I=21%×250,000

I=(21/100)×250,000

I=0.21×250,000=52,500

Corporate income tax=$52,500, the business is therefor liable to pay a corporate income tax amount of $52,5000