 Hello and welcome to the session in which you would learn or we will illustrate how to compute the income tax liability for a corporation. So I'm going to go over the corporate tax formula and the reason I do so because sometime you might be giving this number taxable income directly which is fine. If you are giving taxable income directly then it's easy to compute your taxes. However sometime you might be giving the information and bits and pieces and you will need to either back out into taxable income or compute taxable income. So it's very important to understand the formula on how to get to taxable income. Also this formula is important because knowing the formula would help us know how to compute the charitable contribution which is the 10% of a taxable income and how to compute dividend receive deduction because when we compute the dividend receive deduction we take a certain number from that formula. So looking at the formula would help us refresh our memory also for the charitable contribution and for the dividend receive deduction. Before we proceed any further I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions as well as exercises. Go ahead start your free trial today. Let's go ahead and get started. First we start with gross income and we defined gross income in an earlier session. Basically it includes all income unless it's executed. Then we deduct the deductions which is the expenses. Now when we deduct the deductions we don't deduct charitable contribution. We don't deduct the dividend receive deduction. We don't deduct any net operating loss carryback. We don't deduct any short-term capital loss carryback. Gross income less the basically operating deductions where it's going to give us taxable income for the charitable limitation. Remember we have not deducted the charitable contribution because first we have to compute this taxable income then based on this income we can take 10% of this income then we can deduct 10% of this taxable income as charitable contribution assuming we have this we're limited up to 10% assuming we pay 10%. That's going to give us taxable income for dividend receive deduction. Now once we get to this number this is the number that we use for the dividend receive deduction. Again we multiply it by a percentage and whatever dividend receive deduction we receive it's going to be subtracted less dividend receive deduction and this is going to give us taxable income before any carrybacks less short-term capital loss carryback that's going to give us taxable income. So notice notice here how taxable income was created from gross income. Now from taxable income we are going to multiply this by 21%. Now historically the corporate tax rate was a progressive what does progressive mean it means between 0 and I'm just making this number up between 0 and 25% you will pay 10 0 and 25,000 between 0 and 25,000 you pay 10%. Once you exceed 25,000 up to 50,000 you will pay 15%. From 50,000 to 150,000 you pay 20% so on and so forth. It was progressive that's no longer the case with President Trump we started to have with the Tax Cuts and Jobs Act we have one flat tax rate of 21% for corporation so historically it was a progressive tax rate. You will take taxable income times 21%. Now in any particular problem you are giving taxable income just multiply by 21% you will get to your taxes. Now if you have any credits any business credit you will deduct the credits from your taxes and this is when you know whether you have a payment or a refund due. If you have a payment it means you overpaid your taxes or you have enough credit or payment means you did not pay enough taxes you still have to pay the government or refund due it means you overpaid your taxes. Now let's real quick look at an example to just see how this works it could be as simple as that compute the corporate income tax liability for each of the following independent scenarios one far hat 200,000 $200,000 of taxable income well 200,000 times 21% 42,000 Adam those are old C corporations 2 million of taxable income 2 million times 21% Noah a personal service corporation 20 million of taxable income same concept personal service corporation they have a flat tax rate the same as C corporation times 21% the point I'm trying to make is this the rate is the same whether you make 200,000 2 million or 20 million it used to be different it used to be when you make 200,000 your tax rate will be different than if you made 20 million than if you made 200 million why well the reason it used to be progressive they wanted to have a flat tax rate and this is exactly what we got what should you do now go to far hat lectures whether you are a CPA candidate enrolled agent or an accounting student to look at additional lectures additional resources multiple choice through false that's going to help you pass your course or pass your CPA exam certificate