Chapter 7B Income Taxes. A Partner in the Business. Consider U.S. Government as a partner in every business activity Government shares in the profits from every successful venture through income taxes Government shares in the losses of unprofitable venture through income taxes.
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- Retirement Contribution
- Other adjustments
Adjusted Gross Income (AGI)
Actual cash flows:
Married Individuals Filing Jointly
An unmarried student earned $10,000 in the summer plus another $6000 during the rest of the year. He is allowed one exemption and he spent $1000 on allowable itemized deductions.
The French Chemical Corp. bought land for $220,000, built a $900,000 factory building, and installed $650,000 worth of chemical equipment. The plant was completed and operation begun on April 1. Gross income for the calendar year was $450,000. All expenses amounted to $100,000. The firm used MACRS for depreciation.
Combined incremental tax rate
= State tax rate + (Federal tax rate)(1 - State tax rate)
Initial Cost = $3000; Useful life = 5 years;
Annual net saving= $800; Salvage value = $750;
Initial Cost (inventory) = $20000; Useful life = 4 years;
Annual net saving= $1000, 1500…; Salvage value = $20000;
After-tax rate of return
= (1 – Incremental tax rate) (Before-tax rate of return)