In 2012, T Corporation changed its tax year from ending each September 30th to ending each December 31st. The corporation earned $25,000 during the period October 1, 2012 through December 31, 2012. The tax on the annualized income for the short period will be greater than the tax on $25,000 when the tax rates are progressive.

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The tax on the annualized income for the short period will be greater than the tax on $25,000 when the tax rates are progressive because the annualization method assumes that the income earned during the short period is representative of the income that would have been earned if the corporation had been on a calendar year basis all along. As a result, the income is annualized and taxed as if the corporation had earned that amount of income for the entire year. Therefore, the tax on the annualized income will be greater than the tax on $25,000 for the short period.

In 2012, T Corporation Changed Its Tax Year from Ending