Question

Karen owns 100% of Alpha Corporation's stock and also runs the company as its CEO. Alpha is a C corporation that expects to earn $390,000 before deducting any salary paid to Karen. Karen wants the corporation to pay her $280,000 for the current year in pre-tax dollars. She is considering three different options: (1) a $280,000 dividend, (2) a $140,000 dividend plus a $140,000 salary, or (3) a $280,000 salary. (Click the icon to view additional information.) (Click the icon to view the tax rate schedules.) Read the requirement. First, calculate the total tax liability (corporate and individual) for each of the three options. Start with option 1, then option Option 1: a $280,000 Option 2: a $140,000 dividend Option 3. a $280,000 dividend plus a $140,000 salary salary A Data Table X Corporation Individual Total tax Which option results in the lowest overall tax? Married, Filing Joint and Surviving Spouse If taxable income is: The tax is: Not over $19,400 ................... 10% of taxable income. Over $19,400 but not over $78,950 ...... $1,940.00 + 12% of the excess over $19,400. Over $78,950 but not over $168,400 $9,086.00 + 22% of the excess over $78,950. Over $168,400 but not over $321,450 .... $28,765.00 + 24% of the excess over $168,400 Over $321,450 but not over $408,200 .... $65,497.00 + 32% of the excess over $321,450. Over $408,200 but not over $612,350 .... $46,628.50 + 35% of the excess over $408,200. Over $612,350 $82,354.75 + 37% of the excess over $612,350. * More Info Any dividends qualify for the preferential capital gains tax rates. Karen's husband has no earnings of his own in the current year, so her income is the sole source for the family. Karen and her husband file a joint tax return and claim the $24,400 standard deduction. Preferencial Rate 0% 15% Single Up to $39,375 > $39,375 but not over $434,550 Over $434,550 Filing Jointly* Head of Household Up to $78,750 Up to $52,750 $78,750 but not over $488,850 > $52,750 but not over $461,700 Over $488,850 Over $461,700 Print Done 20% * The corresponding amounts if married filing separately are half of the amounts for filing jointly. The preferential rate is zero for taxable income up to $39,375 if married filing separately. Print Done

Answer 1

Book1 - Excel robin rob BR - 0 X File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do Share = = = Σ AutoSum A7 9 Wrap Text Merge & Center - General .% E L 20Conditional Format as Cell Formatting Table Styles Styles Insert Delete Format Clear Sort & Find & Filter - Select - Editing Alignment Nurnber Cells Calibri V11 VAA Paste B I U. 1. $. A Clipboard Font s G4 X fc 4 A B C D 1 Tax Computation option 1 option 2 option 3 3 corporation 1 5917 15917 15917 4 individual 56000 43517 55549 5 total tax | 71917 59434 71466 6 total tax 71917 59434 71466 E F G H J K L M N O P Q R S T Option 1 corporation Taxabl value 110000 TotalTax Payabl 15917 Option 2 corporation Taxabl value 110000 TotalTax Payabl 15917 Option 3 corporation Taxabl value TotalTax Payabl 110000 15917 Individual laxabl value tax 280000 56000 Individual Taxabl value lindividuall Taxabl vall 280000 140000 Option 2 is better Slab assumption is that corporation slabrale is same as that of individual. Lax Taxabl value Slab Add 28765 26784 Add 111600 Note: 21000 140000 9086 13431 22517 43517 61050 Total 55549 Total Sheet1 Sheet2 = Ready !!! A -- + 89%