Question

It is 2017. The company you founded called Mineral Gells had earnings before tax of $100,000,000 this year (congratulations!). You are the company’s sole owner. The corporate tax rate is 35%, you are in the 39.6% marginal bracket, and your dividends are taxed at 20%.

Mineral Gells is an S-corporation and does a 50% distribution of income. How much do you personally have to pay in taxes, and what is your after-tax distribution of income?

Answer 1

Earnings before tax : $ 100,000,000

Being an S corporation Earnings of $ 100,000,000 is added along with the income of the sole proprietor and taxed @ 39.6%

Tax to be paid : 100,000,000* 39.6% = 39,600,000

After tax distribution of income - S corps don't pay dividends

S corporations (Small business Corporations ) do not pay corporate income taxes

Instead, their profits pass directly to their sole owner. Sole owners then pays personal income taxes on his share of the profits.