WK1 Homework

# WK1 Homework - WEEK 1 HOMEWORK P1-1 Calculate the tax...

This preview shows pages 1–2. Sign up to view the full content.

1 WEEK 1 HOMEWORK P1-1. Calculate the tax disadvantage to organizing a U.S. business today, after passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003, as a corporation versus as a partnership under the following conditions. Assume that all earnings will be paid out as cash dividends. Operating income (operating profit before taxes) will be \$500,000 per year under either organizational form; the effective corporate profits tax rate is 35 percent ( τc = 0.35); the average personal tax rate for the partners of the business is also 35 percent ( τp = 0.35); and the capital gains tax rate on dividend income is 15 percent ( τcg = 0.15). Then, recalculate the tax disadvantage using the same income but with the maximum tax rates that existed prior to 2003. These rates were 35 percent ( τc = 0.35) on corporate profits and 38.6 percent ( τp = 0.386) on personal investment income. Today (under provisions of the Tax Relief Act of 2003). If the firm is organized as a partnership, operating income will be taxed only once, so investors will receive \$500,000 × (1 0.35) = \$325,000. If

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern