Question

Crocker and Company (CC) is a C corporation. For the year, CC reported taxable income of $550,000. At the end of the year, CC distributed all its after-tax earnings to Jimmy, the company's sole shareholder. Jimmy's marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent, including the net investment income tax. What is the overall tax rate on Crocker and Company's pretax income?

a) 18.8%

b) 23.8%

c) 21%

d) 39.8%

e) 44.8%

Answer 1

Answer Page No 0 The flat tax rate for the c corporation is 21% laz on Tazable income 21% * $ 550,000 $115,500 = Amount of dividend distributed Taxable income - tax paid $ 550,000 - $115,500 $ 434,500 will dividend tax Jimmy pay 434,500 x 23.8% = $103,411 Total tax paid on Crocker prebax income flat tax poid + dividend fax paid by sole sharch - older = $115,500 + $ 103,411 $ 218,911 Overall tax rate on Crocker & Company's pretax income $518,911 $550,000 X 100 39.8% ,'. The Option @ is correct answer