MGMT 504 Hmwk 6 - Kelsey Doddridge MGMT 504 Hmwk 6 December...

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Kelsey Doddridge MGMT 504 Hmwk 6 December 3, 2010 1. A. Since corporations are taxable entities separate from their owners, the total taxable income if Morris is a corporation is ($150,000-$85,000)=$65,000. Morris would then have an income tax liability of $16,250($65,000x 25%). Drew would have a taxable income of $115,000($85,000+ $30,000). Since he is single, he would have an income tax liability of $48,981.25($115,000x28%=$32,000+$16,781.25). B. Since S corporations are conduit entities, they do not pay tax. Morris’s taxable income is still equal to $65,000 but they have no tax. Drew however, is still taxed on the $115,000 salary, so his total income tax liability is still $48,981.25 2. A If Morris is being regarded as a corporation, then including dividends, taxable income is $90,000($150,000-$85,000+ $25,000) So Morris have an income tax liability of $30,600($90,000x34%) Dividends are no not deductible business expenses since they are paid out to the shareholders, as Morris sole owner, Drew’s taxed on receipt of dividends. Therefore his
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This note was uploaded on 01/31/2011 for the course MGMT 504 taught by Professor Hatcher during the Spring '08 term at Purdue University-West Lafayette.

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MGMT 504 Hmwk 6 - Kelsey Doddridge MGMT 504 Hmwk 6 December...

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