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MGMT 504 Hmwk 6

# 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 taxable income is now=\$140,000(\$115,000+\$25,000). Since he’s since his tax liability will be \$55,981.25(\$140,000x28%=\$39,200+\$16,781.25).

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

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