A company wants to set up their headquarters in Spain where the corporate tax rates are as follows: 11% of first $40,000 profits, 22% of next $26,000, 39% of next $29,000, and 42% of everything over $110,000. Consultants estimate that they will have gross revenues of $350,000, total costs of $100,000, and $10,000 in allowable tax deductions. What is taxable income for the first year and how much should the company expect to pay in taxes?

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Business

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30 August, 09:15

A company wants to set up their headquarters in Spain where the corporate tax rates are as follows: 11% of first $40,000 profits, 22% of next $26,000, 39% of next $29,000, and 42% of everything over $110,000. Consultants estimate that they will have gross revenues of $350,000, total costs of $100,000, and $10,000 in allowable tax deductions. What is taxable income for the first year and how much should the company expect to pay in taxes?

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Answers (1)

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Abbigail Rasmussen · Answer 1

The correct answer is $240,000 and $76,030.

Explanation:

According to the scenario, the computation for the given data are as follows:

Total Revenue = $350,000

Total cost = $100,000

So, Profit = $350,000 - $100,000 = $250,000

Allowable tax deduction = $10,000

So, Taxable income = $250,000 - $10,000 = $240,000

Tax to pay:

11% on first $40,000 = (11% * $40,000) = $4,400

22% on next $26,000 = (22% * $26,000) = $5720

39% on next $29,000 = (39% * $29,000) = $11,310

42% on ($240,000 - $110,000) = (42% * $130,000) = $54,600

So, Total tax payable = $4,400 + $5,720 + $11,310 + $54600

= $76,030