Katherine,a single? taxpayer, operates adance studio.She is considering either continuing the business as a sole proprietorship or reorganizing it as either a C corporation or an S corporation. Her goal is to withdraw $18,000 of profits from the business annually while minimizing her total tax liability. She expects the business to generate annuall $47,000of taxable income before considering a deductible salary expense. Requirement Which business? form(s) can best achieve Katherine?'s ?goals? Remember that a shareholder is taxed on S corporation income whether withdrawn or not and is not taxed on the actual withdrawals or distributions. Assume that the C corporation is in the 15?% corporate tax? bracket,Katherine is in the 25?% individual tax bracket for ordinary? income, and Katherineis taxed at 15?%

on dividend income. When considering either corporate? option, perform the analysis first by treating any withdrawals as deductible salary payments of the corporation. Then do the analysis by treating them as nondeductible dividends or distributions. Ignore employment taxes.

Complete the table to determine the amount of total tax for each business form. Start with the entity? level, then determine Katherine?'s tax and finally the total tax.?

For simplification? purposes, please use a 25?% tax rate to calculate the tax on Katherine?'s

ordinary? income

	Sole		C Corporation		C Corporation		S Corporation		S Corporation
	Proprietorship		with Salary		with Dividend		with Salary		with Distribution
Entity Level:
Income before salary
Salary deduction
Taxable income
Entity level tax

Answer rating: 100% (QA)

Entity Level Income before salary Taxable income Entity level tax Sole Salary deduction 1800... View the full answer