12-26 Tom, a calendar year taxpayer, informs you that duringthe year, he incurs expenditures of $40,000 that qualify for the incremental research activities credit. In addition, Tom's research base amount for the year is $32,800. Fill in the following:

A.

Qualified research expenditures for the year:
Less Base Amount:
Incremental research expenditures:
Tax Credit rate:
Incremental research activities credit:

B. Tom is in the 25% tax bracket. Determine which approach to the research expenditures and the research activities credit (other than capitalization and subsequent amortization) would provide the greater tax benefit.

Choice 1: reduce the deduction by 100% of the credit and claim the full credit. Fill in the table.

Qualified research expenditures reduced deduction:
Tax Rate:
Tax Benefit of reduced deduction:
Allowed credit:
Total tax benefit for choice 1:

Choice @: Claim the full deduction, and reduce the credit by the product of 100% of the credit times the max corp. rate. Fill in the table:

Deduction
Tax Rate
Tax Benefit of full deduction
Reduce credit at corp rate
Total tax benefit for choice 2