Question

Comparison of Tax Entities. a. Keith Thomas and Trent Brooks began a new consulting business on January 1, 2020. They organized the business as a C corporation, KT, Inc. During 2020, the corporation was successful and generated revenues of $2 million. KT had operating expenses of $800,000 before any payments to Keith or Trent. During 2020, KT paid dividends to Keith and Trent in the amount of $350,000 each. Assume that Keith's wife earned $130,000 from her job, they file a joint return, have itemized deduc- tions of $40,000, and have no children. Compute the total tax liability of KT, Inc. and Keith and his wife for 2020. Ignore the net investment income tax.

Answer 1

1 Income Tax Calculation under married filling jointly basis $830,000 Regularly Taxed Income (W1) (salary, interest, regularly taxed dividends, short-term capital gains) Adjusted Gross Income: Intemized deduction Taxable income: $830,000 $40,000 $790,000 TOTAL TAX(W2) $229,439.90 Income Tax Calculation OF KT,INC Corporation Taxable income (w3) tax total Tax $1,200,000 21% $252,000

2 Income Tax Calculation for LLC No income tax should be paid under LLC. The income from business will be transferred to income tax computation in equal ratio Income Tax Calculation OF Keith Business income one half of self employment deductions TAXABLE INCOME $350,000 $13,224 $12,400 $324,376 TOTAL TAX (4) 88347

W2 wi WIFE SALARY INCOME TOTAL REGULAR TAXED DIVIDEND($350000+$350000) TOTAL REGULAR TAXED INCOME $130,000 $700,000 $830,000 RATES 10% 12% 22% 24% 32% 35% 37% Married Filing JOINTLY DIFFERENCE TAXES $0 - $19,750 $ 19,750.00 $ 1,975.00 $19,751 - $80,250 $ 60,449.00 $ 7,253.88 $80,251 - $171,050 $ 90,799.00 $ 19,975.78 $171,051 - $326,600 $ 155,549.00 $ 37,331.76 $326,601 - $414,700 $ 88,099.00 $ 28,191.68 $414,701 - $622,050 $ 207,299.00 $ 72,554.65 $622,051+ $ 167,949.00 $ 62,141.13 $ 229,423.88 TOTAL

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