Bob is a business consultant and plans to expand his business to include his two adult children, Tracy and Cody. Bob, Tracy, and Cody file jointly with their spouses and all in the 24 percent marginal tax bracket. Bob estimates that the expanded business would generate $300,000 of qualifying business income annually. Assume an SE tax rate of 14.13 percent (15.3% * 92.35%), an employer FICA tax rate of 7.65 percent, and an employee FICA tax rate of 7.65 percent. Also assume any wages paid to Tracy and Cody would be subject to a combined Employer Unemployment/Workman Comp rate of five percent. Bob is considering three business entity strategies for the enterprise: a. Bob operates the business as a sole proprietor and hires Tracy and Cody as employees with an annual salary of $90,000 each. b. Bob, Tracy and Cody form a partnership with partnership income allocated 40 percent to Bob, and 30 percent each to Tracy and Cody. c. Bob, Tracy and Cody form a partnership with partnership income allocated ⅓ to each. Design a spreadsheet that would enable you to answer the following questions: Which alternative has the largest QBID? Which alternative minimizes the total Payroll/SE tax expense? Which alternative gives the maximum net income to Bob, Tracy and Cody?

Answer rating: 100% (QA)

Bob 120000 1413100 120000 24100 120000 765100 158002... View the full answer