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Bulldog Corporation reported taxable income of $975,000 this year, before any deduction for any payment to...

Bulldog Corporation reported taxable income of $975,000 this year, before any deduction for any payment to its sole shareholder and employee, Georgia Brown. Bulldog chose to pay a bonus of $107,000 to Georgia at year-end. The bonus meets the requirements to be “reasonable” and is therefore deductible by Bulldog. Georgia is subject to a marginal tax rate of 35 percent on the bonus. What is the income tax imposed on the corporate income earned by Bulldog and the income tax on the bonus paid to Georgia?

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Answer #1

The double taxation has been avoided by Bulldog Corporation by deducting compensation to its shareholder from the reported taxable income.

Corporate tax (868000*21%)

$182280

Shareholder tax (107000*35%)

37450

Total income tax

$219730

Corporate taxable income = total income – bonus paid = 975000-107000 = $868000

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