ZuoTi.Pro
Question

Mr. Allen, whose marginal tax rate is 37%, owns an office building that generates $100,000 annual...

Mr. Allen, whose marginal tax rate is 37%, owns an office building that generates $100,000 annual taxable income. He plans to create a family partnership by giving each of his three children a 15% interest in the building. Mr. Allen will retain a 55% interest. Mr. Allen will manage the building, and receive a guaranteed payment of $20,000. If Mr. Allen's children are in the 12% tax bracket, compute the annual tax savings from this income-shifting arrangement.

A. $11250

B. $9,000

C. $5,000

D. $0

business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Ans: (B) $9000

Explanation:

1) Partnership's total income is $ 100,000.

2) From this $100,000 Mr. Allen will retain $20,000 guaranteed payment.

3) So, remaining income $80,000( $100,000- $20,000) would be distributed to 3 children having 45% Intererst.( 15% int .per child*3child)

4) Allocate Income to Children:

= $80,000 * 45%

= $36,000.

5) Rate Saving:

= ( 37% bracket - 12% bracket)

= 25%

6) Annual Tax Saving From Income Shift:

= $36000 × 25%

= $ 9000

0 0
Add a comment
Know the answer?
Add Answer to:
Mr. Allen, whose marginal tax rate is 37%, owns an office building that generates $100,000 annual...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Mrs. Franklin, who is in the 37 percent tax bracket, owns a residential apartment building that...

    Mrs. Franklin, who is in the 37 percent tax bracket, owns a residential apartment building that generates $100,000 annual taxable income. She plans to create a family partnership by giving each of her two children a 15 percent equity interest in the building. (She will retain a 70 percent interest.) Mrs. Franklin will manage the building, and value of her services is $25,000 per year. If Mrs. Franklin's children are in the 12 percent tax bracket, compute the tax savings...

  • Mrs. Franklin, who is in the 37 percent tax bracket, owns a residential apartment building that...

    Mrs. Franklin, who is in the 37 percent tax bracket, owns a residential apartment building that generates $120,000 annual taxable income. She plans to create a family partnership by giving each of her two children a 20 percent equity interest in the building. (She will retain a 60 percent interest.) Mrs. Franklin will manage the building, and value of her services is $40,000 per year. If Mrs. Franklin's children are in the 12 percent tax bracket compute the tax savings...

  • Mr. and Mrs. Maxwell are equal partners in Family partnership. The Maxwell's marginal tax rate is 35%. Next year, the pa...

    Mr. and Mrs. Maxwell are equal partners in Family partnership. The Maxwell's marginal tax rate is 35%. Next year, the partnership is expected to generate $200,000 of ordinary income. The Maxwells are considering transferring 20% interests in the partnership to each of their children. Their daughter, Melissa, has a 12% marginal tax rate. Their son, Mark, has a 22% marginal tax rate. Calculate the expected annual tax savings to the family from the proposed transfer of partnership interests. A. $14,000...

  • 1. Emily, whose tax rate is 32%, owns an office building which she purchased for $900,000...

    1. Emily, whose tax rate is 32%, owns an office building which she purchased for $900,000 on March 18 of last year. The building is sold for $950,000 on February 20 of this year when the adjusted basis of the building was $876,000. The tax results to Emily are A) $74,000 1231 gain taxed at 15%. B) $74,000 ordinary income taxed at 32%. C) $24,000 1250 unrecaptured gain taxed at 25% and $50,000 1231 gain taxed at 15%. D) $24,000...

  • 52. Comprehensive Problem (Tax Return Problem). Mr. and Mrs. Sam Morris retired on February 10, 2019,...

    52. Comprehensive Problem (Tax Return Problem). Mr. and Mrs. Sam Morris retired on February 10, 2019, and call you in for tax advice. Both Sam and his wife Sarah have worked for many years. Sam is 65 years of age and his wife is 63. The Morrises three children gave their parents a gala retirement party. Many friends and relatives were invited. Gifts valued at over $1,000 were received by the couple. In October, Mrs. Morris entered a contest being...

  • Comprehensive Income Tax Course: Module 1 4. Randy turned 16 last year and had his first...

    Comprehensive Income Tax Course: Module 1 4. Randy turned 16 last year and had his first summer job. Even though his parents are claiming him as a dependent he wants to file a return in order to get his refund. He receives his W-2 and decides he can do his own return using form 1040-EZ. Which of the following information is not found on a Form W-2? a) The taxpayer’s Social Security number b) The taxpayer’s wages, tips and other...

  • i need help in writing a 3pages investment policy statement for Bill and Joyce Owens, it...

    i need help in writing a 3pages investment policy statement for Bill and Joyce Owens, it need to include the client profile, recommended investment strategy, Present an allocation that is consistent with the strategy it has to match with the profile, Expecations (which have to get the same return for each of my asset classes), Syntax (has to sound like an investment policy statement) Client Profile Information: Name: Bill and Joyce Owens Address: 123 Any Street, Heartland, ME Client Story...

  • I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this p...

    I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this paper and some conclusions and contributes of this paper. I need this for my Finishing Project so i need this ASAP please ( IN 1-2-3 HOURS PLEASE !!!) Budgetary Policy and Economic Growth Errol D'Souza The share of capital expenditures in government expenditures has been slipping and the tax reforms have not yet improved the income...

  • Please read the article and answer about questions. You and the Law Business and law are...

    Please read the article and answer about questions. You and the Law Business and law are inseparable. For B-Money, the two predictably merged when he was negotiat- ing a deal for his tracks. At other times, the merger is unpredictable, like when your business faces an unexpected auto accident, product recall, or government regulation change. In either type of situation, when business owners know the law, they can better protect themselves and sometimes even avoid the problems completely. This chapter...

  • CASE 20 Enron: Not Accounting for the Future* INTRODUCTION Once upon a time, there was a...

    CASE 20 Enron: Not Accounting for the Future* INTRODUCTION Once upon a time, there was a gleaming office tower in Houston, Texas. In front of that gleaming tower was a giant "E" slowly revolving, flashing in the hot Texas sun. But in 2001, the Enron Corporation, which once ranked among the top Fortune 500 companies, would collapse under a mountain of debt that had been concealed through a complex scheme of off-balance-sheet partnerships. Forced to declare bankruptcy, the energy firm...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT