Could anybody help with my puzzle on page 508 of the third book:
Why “State income taxes, net of federal benefit” is a positve number while the net income is a loss (a negative number)? Thanks!
Don’t have it in front of me now but it might be referring to the difference between taxable profit and accounting profit. One can be positive and the other negative.
But the state income tax is derived from net income(loss) minus federal tax and then multiplied by state tax rate. The first question asked about the net income(loss). The correct answer is a loss of -556K ( Federal Tax Benefit of -112K devided by rate 34% to get loss of -329K from continued operation. Then, -329K minus the inc. tax exps of 227k to get the net loss of 556K).
I found from some other info online. Let’s assume fed rate is 34%, and state rate is 6% before fed benefit. The benefit is 34% X 6% = 2%, so the net state rate would be 4% and the blended rate would be 34%+4%=38%. Looks like the fed tax would have the same sign as the state tax. I still don’t understand how come the state tax could a positve amount while the fed has a negative one.