Lancaster Inc expects to have taxable income of 275000 for 2

Lancaster Inc. expects to have taxable income of $275,000 for 2016 and a tax credit of $12,250. Assume that the graduated tax rate schedule is as follows:

$1-$100,000 15%

$100,001-200,000 22%

$200,001-460,000 28% + 5% surtax

$460,001 and above 30%

Required: Determine the tax expense for the first quarter, assuming that taxable income is $65,000.

Solution

Estimated annual tax: $100,000 x 15% $15,000 100,000 x 22%            22,000 75,000 x (28%+5%)            24,750 Total tax $61,750 Less: Tax Credit          (12,250) Effective Tax            49,500 Effective tax rate = 49500÷275000 18% So the first quarter tax expense will be $65,000 x 18% $        11,700