Susan Visscher has operated her small restaurant as a sole proprietorship for several years, but projected changes in her business's income have led her to consider incorporating. Visscher is married and has two children. Her family's only income, an annual salary of $52,000, is from operating the business. (The business actually earns more than $52,000, but Susan reinvests the additional earnings in the business.) She itemizes deductions, and she is able to deduct $8,600. These deductions, combined with her four personal exemptions for 4 × $2,800 = $11,200, give her a taxable income of $52,000 $8,600 $11,200. (Assume the personal exemption remains at $2,800.) Of course, her actual taxable income, if she does not incorporate, would be higher by the amount of reinvested income. Visscher estimates that her business earnings before salary and taxes for the period 2002 to 2004 will be:

YEAR_______________________ EARNINGS BEFORE SALARY AND TAXES

2002..................................................................... $ 70,000

2003..................................................................... $ 95,000

2004..................................................................... $110,000

a. What would her total taxes (corporate plus personal) be in each year under

(1) A non-S corporate form of organization? (2002 tax = $7,530.)

(2) A proprietorship? (2002 tax = $8,356.)

b. Should Visscher incorporate? Discuss.