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# Creating the Lowest Overall Combined Tax Liability

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Mary (Who is single with no dependants and who does not itemize) owns 100% of Beezer Tweezer Co, which is organized as a C-Corporation. Beezer Tweezer has \$400,000 of taxable income in 2011 and Mary has \$34,500 of outside taxable income before any wage compensation from Beezer Tweezer. Assuming reasonable compensation for Mary's services to Beezer Tweezer would fall in the range of \$150,000 to \$250,000, which of the following wage distribution amounts to Mary would result in the lowest overall combined tax liability (For Mary and Beezer Tweezer)?

A) \$150,000
B) \$200,000
C) \$250,000
D) Taking no wages from Beezer Tweezer.

#### Solution Preview

The \$400,000 of taxable income to the corporation doesn't affect Mary's personal income because the corporation pays its own taxes even though Mary is the sole owner. Mary has \$34,500 in taxable income from other sources and can take income from \$150,000 to \$250,000. If she takes the lowest amount, her total taxable income is \$34,500 + \$150,000 = \$184,500. Mary was single in 2011, so this income would put her in the 33% tax bracket. Her total tax would be \$184,500 x 33% = \$60,885 plus additional tax as applicable to her individual return. We would want her to choose D - take no wages from the company because her minimum liability would be \$60,885. However, the IRS would certainly audit her return ...

#### Solution Summary

This solution provides the correct answer with complete explanation and all needed calculations to the tax liability problem presented. Includes 2 references (one from Wikipedia).

\$2.49