2-39, 2-40 - Taxable Income = 295,000 135,000 70,000 =...

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ACCT 467 Kristen Jack Chp 2 – Probs 39, 40 1/22/2012 2-39 35% Federal Income Tax Bracket Gross Income = $295,000 Ordinary Trade or Business Deduction = $135,000 (A)Proprietorship, Withdrawal = 70,000 (personal use) Tax Liability = (295,000 – 135,000) *35% = $56,000 (B) Corporation, Salary = 70,000, no dividends to shareholder Taxable Income = 295,000 – 135,000 – 70,000 = 90,000 Tax Liability = 13,750 + (34% * (90,000 – 75,000)) + (70,000 * 35%) = $43,350 (C) Corporation, no salary/dividends to shareholder Taxable Income = 295,000 – 135,000 = 160,000 Tax Liability = 22,250 + (39% * (160,000 – 100,000)) = $45,650 (D)Corporation, Salary = 70,000, remainder as dividends to shareholders
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Unformatted text preview: Taxable Income = 295,000 135,000 70,000 = 90,000 Corporate Tax = 13,750 + (34% * (90,000 75,000)) = 18,850 Tax Liability = 18,850 + (70,000 * 35%) + ((90,000 18,850) * 15%) = $54,022.50 (E) I would recommend Benton to incorporate because, based on the above calculations (in A & B), he would have less tax liability as a corporation ($43,350) than as a proprietorship ($56,000). 2-40 Salary for fiscal year = 180,000 (A)Salary for Nov-Dec = (180,000 / 12) * 2 = $30,000 (B) Taxable Income = 50,000 Tax Liability = 50,000 * 35% = $17,500...
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