Question

John Day and Carol Knight conduct similar financial activities. Each is employed and has a portfolio of investments, and during the current year, each started a separate small business. Their financial results for the year ended December 31, 2019, are identical, as follows: Employment income Interest income from investment portfolio Loss from new small business operation $48,000 19,000 24,000 The only difference between Day and Knight is that Day operated his business as a proprietorship, whereas Knight operated her business from a wholly owned corporation. Required: Assuming that individual tax rates are 40%, compare the tax liability of Day with that of Knight for 2019.

Answer 1

Tax liability of day Particulars Amount Employment income $ 48,000.00 Property income $ 19,000.00 $ 67,000.00 Less business loss $-24,000.00 $ 43,000.00 Tax @40% $ 17,200.00 Tax liability of Night Particulars Amount Employment income $ 48,000.00 Property income $ 19,000.00 $ 67,000.00 Tax @40% $ 26,800.00