Question

Calculator Problem 12-25 (b) (LO. 3,7) Ivan, a calendar year taxpayer, informs you that during the year he inours expenditures of $158,000 that qualify for the incremental research activities credit. In addition, it is determined that his base amount for the year is $93,000. a. Determine Ivan's incremental research activities credit for the year. b. Ivan is in the 24% tax bracket. Determine which approach to the research expenditures and the research activities credit (other than capitalization and subsequent amortization) would provide the greater tax benefit to Ivan. Total tax benefit of Choice 1 - Reduce the deduction by 100% of the credit and calm the full credit: Total tax benefit of Choice 2 - Claim the full deduction, and reduce the credit by the product of 100% of the credit times 21%: Therefore, Ivan should select

Answer 1

a. Ivan's incremental research activities credit for the year is (158,000- 93,000)× 20% = $13,000.

b. Total tax benefit of choice 1 - reduce deduction by 100% of the credit and claim the full credit

Credit $13,000 and $145,000

Total tax benefit of choice 2- claim the full deduction and reduce the credit by the product of 100% of the credit times 21%

$158,000 and $(13,000-(13000*100%×21%))

$158000 and $10,270