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?

Question

Business

Jaeden Waters

27 February, 18:26

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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Wallace · 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