Income Taxes

The Income Tax a company pays is made up of state/provincial tax & federal tax.  It is calculated by applying an Income Tax Rate or percentage (%) to a company's Earnings Before Taxes.

As illustrated on Murray's 200X Forecasted Income Statement, Earnings Before Taxes on December 31, 200X are expected to be $7,829. Since Murray assumes an Income Tax Rate of 30%, his expected Income Tax obligation for 200X is $2,349 (IE $7,829 Earning Before Taxes x 30% tax rate = $2,349).

As illustrated on Murray's 200Y Forecasted Income Statement, Earnings Before Taxes on December 31, 200Y are expected to be $24,761. Since Murray assumes an Income Tax Rate of 30%, his expected Income Tax obligation for 200Y is $7,428 (IE $24,761 Earning Before Taxes x 30% tax rate = $7,428

Also see Budget 14 entitled "Developing Your Income Tax Rate & Budget", for additional information.