For the current year, Custom Craft Services Inc. (CCS), a C corporation, reports taxable income of $200,000
Question:
For the current year, Custom Craft Services Inc. (CCS), a C corporation, reports taxable income of $200,000 before paying salary to Jaron the sole shareholder. Jaron's marginal tax rate on ordinary income is 35 percent and 15 percent on dividend income. Assume CCS's tax rate is 35 percent.
a. How much total income tax will Custom Craft Services and Jaron pay (combining both corporate and shareholder level tax) on the $200,000 taxable income for the year if CCS doesn't pay any salary to Jaron and instead distributes all of its after-tax income to Jaron as a dividend (ignore the net investment income tax)?
b. How much total income tax will Custom Craft Services and Jaron pay (combining both corporate and shareholder level tax) on the $200,000 of income if CCS pays Jaron a salary of $150,000 and distributes its remaining after-tax earnings to Jaron as a dividend (ignore the net investment income tax)?
c. Why is the answer to part b lower than the answer to part a?
DividendA 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...
Step by Step Answer:
a Without Salary Description b With Salary Description 1 Taxable incom...View the full answer
Taxation Of Individuals And Business Entities 2015
ISBN: 9780077862367
6th Edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver
