Question: Mr Lion who is in the 39 6 percent tax bracket

Mr. Lion, who is in the 39.6 percent tax bracket, is the sole shareholder of Toto, which manufactures greeting cards. Toto’s average annual net profit (before deduction of Mr. Lion’s salary) is $200,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.)
a. Mr. Lion’s salary is $100,000, and Toto pays no dividends.
b. Mr. Lion’s salary is $100,000, and Toto distributes its after-tax income as a dividend.
c. Toto is an S corporation. Mr. Lion’s salary is $100,000, and Toto makes no cash distributions. d. Toto is an S corporation. Mr. Lion draws no salary, and Toto makes no cash distributions.
e. Toto is an S corporation. Mr. Lion draws no salary, and Toto makes cash distributions of all its income to Mr. Lion.

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  • CreatedNovember 03, 2015
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