Elizabeth owns 100% of Omega Corporation's stock and also runs the company as its CEO. Omega is
Question:
Elizabeth owns 100% of Omega Corporation's stock and also runs the company as its CEO. Omega is a C corporation that expects to earn $400,000 before deducting any salary paid to Elizabeth. Elizabeth wants the corporation to pay her $250,000 for the current year in pre-tax dollars. She is considering three different options:
(1) A $250,000 dividend,
(2) A $125,000 dividend plus a $125,000 salary, or
(3) A $250,000 salary.
Any dividends qualify for the preferential capital gains tax rates. Elizabeth's husband has no earnings of his own in the current year, so her income is the sole source for the family. Elizabeth and her husband file a joint tax return and claim the $24,000 standard deduction. Calculate the total tax liability (corporate and individual) for each of the three options, and determine which option results in the lowest overall tax.
CorporationA 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...
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Global Taxation How Modern Taxes Conquered The World
ISBN: 9780192897572
1st Edition
Authors: Philipp Genschel, Laura Seelkopf