Question

Tax Planning is crucial in the setup and funding of new firm. Presuming an entrepreneur gets good counsel and establishes a “pas-through entity” for tax purposes, how much will the total taxes be on such a firm that has $1,500,000.00 in corporate profits at a 35% individual tax rate?

Answer 1

In a pass through entity , the entire income is only taxed once and the issue of double taxation is avoided. Under this structure , the entire profit and revenues are transferred to its owners .So, this amount will be taxed at the individual income tax rates and not subject to corporate taxes . Thus , the tax to be paid in this case would be:

tax = 0.35 x 1,500,000= 525000

Tax is also payable on the revenues earned by the business but since that hasnt been given here , we can ignore it for the time being.