Question

Exercise 17-26 (Algorithmic) (LO. 3) Compute the current-year income tax liability for each of the following unrelated calendar year C corporations. a. Darter Corporation has taxable income of $70,300. b. Owl Corporation has taxable income of $12,628,000. c. Toucan Corporation, a personal service corporation, has taxable income of $765,000.

Answer 1

C corporation are separately taxable entities. They file form 1120. They pay corporate tax. C corporation income is taxed at a flat rate of 21%. But Personal service corporation ( PSCs ) paid a flat 35% rate of income tax.

A. Darter corporation has taxable income of $ 70,300

So, income tax liability of Darter corporation = $ 70,300 X 21% = $ 14,763

B. Owl corporation has taxable income of $ 12,628,000

So, income tax liability of Owl corporation = $ 12,628,000 X 21% = $ 2,651,880

C.  Toucan corporation, a personal service corporation ,has taxable income of $ 765,000

So, income tax liability of Toucan corporation = $ 765,000 X 35% = $ 267,750