Purple Company records $200,000 in net income for 2019 before deducting any compensation or other payment to

Question:

Purple Company records $200,000 in net income for 2019 before deducting any compensation or other payment to its sole owner, Kirsten. Kirsten is single, and she claims the $12,200 standard deduction. Purple is Kirsten’s only source of income. Ignoring any employment tax considerations, compute Kirsten’s after-tax income if:

a. Purple is a proprietorship. Kirsten withdraws $50,000 from the business during the year; she claims a $37,560 deduction for qualified business income.

b. Purple is a C corporation and pays out all of its after-tax income as a dividend to Kirsten.

c. Purple is a C corporation and pays Kirsten a salary of $158,000.

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...

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