Question

Purple Company has $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 for 2019. 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.

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.

b. Purple Company is a C corporation and the corporation 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.

What is Purple Corporations' after tax income annd Kristen's after tax income?

Answer 1

Computation of tax payable by Purple Co. and income
available for distribution as Dividend
Net income of Purple Company for 2019	$200,000
Less: Corporate tax @ 21%	$42,000
Net income available for distribution as dividend	$158,000
The tax rate for C corporation dividends are as under
$ 0 to $ 38,600	Nil
$ 38,600 to $ 425,800	15%
$ 425,801 and above	20%
Computation of tax payable by Kirsten
Dividend income of Kirsten for 2019	$158,000
Less: Standard Deduction	($12,200)
Taxable income	$145,800
Income tax @ 15%	$21,870
Computation of Net Income after Tax
Purple Company
Net Income	$200,000
Less: Corporation Tax	$42,000
Net Income after Tax	$158,000
Kirsten
Net Income	$158,000
Less: Corporation Tax	$21,870
Net Income after Tax	$136,130