Question

During the current year, Sparrow Corporation, a calendar year C corporation, had operating income of $425,000, operating expenses of $280,000, a short-term capital loss of $10,000, and a long-term capital gain of $25,000. How much is Sparrow’s income tax liability for the year?

Answer 1

Answer: $ 45,650

Explanation:

Net Operating Income = Operating income - Operating Expenses

                                      = $425,000 - $280,000

                                      = $145,000

Net capital gain = Long-term capital gain - short-term capital loss

                          = $25,000 - $10,000

                          = $15,000

Taxable Income = Net Operating Income + Net capital gain

                           =  $145,000 + $15,000

                           = $160,000

Total Tax Liability = Tax on $100,000 - Tax on ($16,000-$100,000) @ 39%

                             = $ 22,250 + $23,400

                             = $ 45,650