Question

A company’s accounting department has developed a schedule of future deductible amounts as follows.                     

                                              2021               2022               2023

Deductible amounts             $19,000           $39,000         $61,000

As of the beginning of 2020, the enacted tax rate is 30% for 2020 and 2021, and 25% for 2022-2023. At the beginning of 2020, the company had no deferred income taxes on its balance sheet. Taxable income for 2020 is $654,000. What is the amount of income tax expense for 2020?

Answer 1

The Company has income of $654,000 for 2020. There are no deductible amounts for 2020. Tax rate for 2020 is 30%> Also, there is no opening deferred taxes as of 2020. Income tax expense shall be as follows-

Tax payable on 2020 profit- 654,000*30% = 196,200

Less: Deferred tax assets-

2021 - 30% of 19,000 = (5,700)

2022- 25% of 39,000 = (9,750)

2023- 25% of 61,000 = (15,250)

Tax expenses- 165,500 for 2020

Note: assumed that all the deductible items are incurred as on 2020. In case these are not incurred, tax expense shall be $196,200.