Purple Company has $200,000 in net income for 2015 before deducting any compensation or other payment to

Question:

Purple Company has $200,000 in net income for 2015 before deducting any compensation or other payment to its sole owner, Kirsten. Kirsten is single and has no dependents. She claims the $6,300 standard deduction, and her personal exemption is $4,000 for 2015. Purple Company is Kirsten’s only source of income. Ignoring any employment tax considerations, compute Kirsten’s after-tax income if:

a. Purple Company is a proprietorship and Kirsten withdraws $50,000 from the business during the year.

b. Purple Company is a C corporation and the corporation pays out all of its aftertax income as a dividend to Kirsten.

c. Purple Company is a C corporation and the corporation pays Kirsten a salary of $138,750.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...