Question

Problem 2-23 (LO. 1) 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. Click here to access the 2019 individual tax rate schedule to use for this problem. Assume the corporate tax rate 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 Company is a proprietorship and Kirsten withdraws $50.000 from the business during the year; Kirsten daims a $37.560 deduction for qualified business income. Kirsten's taxable income is $ 150,240 and her after-tax income is $ 169,768 b. Purple Company is a 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 percent rate applies to the first $38,600 of taxable income. Purple Corporation's after-tax income is 158,000 and Kristen's after tax income is c. Purple Company is a corporation and the corporation pays Kirsten a salary of $158.000. Kirsten's after-tax income is

Answer 1

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A)
Net income (A)		200000
Less:
Standard Deduction:		-12200
QBI Deduction		-37560
Total Taxable Income		150240
Tax (14382.50)+(150240-84200)*24% (B)		30232
After tax income (A-B)		169768
B)
Net income		200000
Less:
Corporate Tax @ 21%		-42000
After tax income to be distributed as dividend (A)		158000
Less: Standard Deduction		-12200
Total Taxable Income		145800
Tax (145800-39375)*15% (B)		15964
After tax income (A-B)		142036
C)
Salary Income		158000
Less: Standard Deduction		-12200
Total Taxable Income		145800
Tax (14382.50)+(145800-84200)*24% (B)		29167
After tax income (A-B)		128833