Question

Incorrect Question 19 0/0.2 pts In 2023, Kate Corp., had gross profit of $160M and business interest income of $2M. Kate Corp. also had deductible business expenses (other than interest and depreciation) of $60M, depreciation of $50M, and business interest expense of $40M. Kate Corp. is not a small corporation. What is Kate Corp.'s 2019 taxable income (after application of the business interest expense limitation)? Make sure to enter all of the zeros (e.g. 10M should be entered as 10,000,000). 73,000,000

In 2023, Kate Corp., had gross profit of $160M and business interest income of $2M. Kate Corp. also had deductible business expenses (other than interest and depreciation) of $60M, depreciation of $50M, and business interest expense of $40M. Kate Corp. is not a small corporation.

What is Kate Corp.'s 2019 taxable income (after application of the business interest expense limitation)? Make sure to enter all of the zeros (e.g. 10M should be entered as 10,000,000).

Answer 1

Section 163(j) applies, the amount of deductible business interest expense in a taxable year cannot exceed the sum of:

1. the taxpayer’s business interest income for the year;
2. 30% of the taxpayer’s adjusted taxable income (ATI) for the year; and
3. the taxpayer’s floor plan financing interest expense for the year.

Particulars	Amount
Gross Profit	$160,000,000
Business Interest Income	$2,000,000
Total Income	$162,000,000
Deductible business expenses	($60,000,000)
Depreciation	($50,000,000)
Business Interest Expense	($2,000,000)
Taxable Income	$50,000,000

Gross Profit	$160,000,000
Net Business Expense ($60M - $2M)	$58,000,000
Adjusted taxable income (ATI)	$102,000,000
Business Interest Expense @30%	$30,600,000
Business Interest Expense allowed	$2,000,000