a.) Calculate the tax disadvantage to organizing a U.S. business today as a corporation, as compared to a partnership, under the following conditions. Assume that all earnings will be paid out as cash dividends. Operating income (operationing profit before taxes) will be $500,000 per year under either organizational form. The tax rate on corporate profits is 35% (Tc=0.35), the average personal tax rate for the partners is also 35% (Tp=35), and the capital gains tax rate on dividend income is 15%(Tdiv=0.15).
*The "c" inTc=0.35 is little and same with "div" on Tdiv=0.15*
b.) Now recalculate the tax disadvantage using the same income but with the maximum tax rates that existed before 2003. (These rates were 35% (Tc = 0.35) on corporate profits 38.6% (Tp = 0.386) on personal investment income.)
This question was asked on Jan 25, 2013.
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