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 Company is Kirsten's only source of income.

Ignoring any employment tax considerations, compute Kirsten's after-tax income for each of the following situations.

Click here to access the 2019 individual tax rate schedule to use for this problem. Assume the corporate tax rate is 21%.

When required, carryout intermediate tax computations to the nearest cent and then round your final tax liability to the nearest dollar.

a. If Purple is a proprietorship. Kirsten withdraws $50,000 from the business during the year; she claims a $37,560 deduction for qualified business income. Kirsten's taxable income is
$, and her after-tax income is $.

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

Note: Individual taxpayers received preferential treatment regarding the taxation of qualified dividends (0%,15%,20%). For single taxpayers, the 0 percent rate applies to the first $38,600 of taxable income.

Purple Corporation's after-tax income is $ and Kristen's after tax income is $.

c. Purple is a C corporation and pays Kirsten a salary of $158,000. Kirsten's after-tax income is
$.

2-

Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC records net income of $246,500 after deducting Robert's $73,950 salary. In addition to his compensation, ABC pays Robert dividends of $172,550.

a. What is Robert's qualified business income?
$

b. What is Robert's qualified business income if you determined that reasonable compensation for someone with Robert's experience and responsibilities is $163,950?
$

Answer 1

	Amount ($)
Income from Propertership-A	2,00,000
Less deduction for qualified business Inocme	-37,560
Less - Standard deduction 2019-E	-12,200
Taxable Income	1,50,240
Tax on $ 150240
$14382.50	14,383
24%*(150240-84200)	15849.6
Tax amount -B	30,232
After tax Income (A-B)	1,69,768
Tax on corportion Net Income $ 200,000-C	42,000
Corporation after tax Income(A-C)=D	1,58,000
Kristen Taxable Income (D-E)	1,45,800
Kristen Tax amount
$39375*0%
Balance ($145800-$39375)*15%	15,964
Kristen Tax amount=M	15,964
Kristen after tax Income (D-M)	1,42,036
Taxable Income of Corporation	42,000
(A-D)
Taxable income of Kristen(D-E)=L	1,45,800
Kristen Tax= K	29,167
$14382.50	14,383
24%*(145800-84200)	14784
Kristen income after tax(L-K)	1,16,634

answer 2

Robert Qualified

During the current year, ABC records net income of $246,500 after deducting Robert's $73,950 salary

In addition to his compensation, ABC pays Robert dividends of $172,550.

Robert's experience and responsibilities is $163,950

Actually reasonable compensation - $ 163950 - $ 73950 of payments classified as wages = $ 90,000

Net income - $ 246500- $90,000 of dividends = $156,500

Roberts Qualified business income would be $ 156,500