Let us assume as was true of wealthy individuals in
Let us assume, as was true of wealthy individuals in the United States in the 1960s, that the personal tax rate is 70% and that realized capital gains are taxed at half the top personal tax rate— that is, tcg = 35%. Assume that the top corporate rate is 48%. The before tax rate of return on investments is 15%. You are asked to advise a doctor as to whether she should incorporate. What would be the tax advantageous strategy for 5 year, 10 year, and 15 year investment horizons? Suppose that she did incorporate and that 5 years later the personal tax rate falls unexpectedly to 50%. Should she then liquidate her corporation and start a new partnership?
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