Purchase Solution

Minimizing Personal Income Tax of a Small Company Owner

Not what you're looking for?

Ask Custom Question

I am having trouble with the following problem in determining if the strategy will minimize Mr. Whit's payroll tax. Please provide an explanation with your answer.

Mr. Whit is the sole shareholder and CEO of newly incorporated Talawanda Concepts. He plans to pay himself a reasonable $100,000 annual salary. However, the corporation will pay his first-year salary on a monthly basis and the entire second year salary on December 31. The corporation will pay nothing to him during the second calendar year, and then it will repeat the payment cycle in the third calendar year. Talawanda will fund each year-end salary prepayment through short-term loans from a local bank. The purpose of this odd payment schedule is to avoid Social Security tax on Mr. Whit's base salary in alternating years. Will this strategy to minimize his payroll tax actually work?

Purchase this Solution
Solution Summary

The solution discusses minimizing personal income tax for a small company owner.

Solution Preview

Hello,

This strategy will not work. If Mr. Whit is paying himself a salary, it is a pre-determined amount paid regularly. Skipping years does not make it regular. He could also have chosen to pay himself ...

Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Operations Management

This quiz tests a student's knowledge about Operations Management

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

View More Free Quizzes
Related BrainMass Solutions

  • Deciding the form of business entity

    While these corporate rates are lower than most personal income tax, the money may be taxed a second time when it is removed from the company and paid to the owners.

  • S-Corporation vs LLC

    Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.

  • Types of entities, tax and legal advantages

    They reported further that shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.

  • Type of entity for a business to avoid personal liability

    If a new business owner was operating a sole proprietorship and wanted to avoid personal liability, what type of entity would you suggest?

  • Business Mathematics

    The income or loss is also reported on the personal income tax of the owner. Most small businesses are started as this form of business. This is the easiest of all of the types of businesses to open.

  • Business Structures for CPA Businesses

    (Ch. 7 of Advanced Accounting) For a CPA practice in which I was the only owner, I would choose to become a Limited Liability Company (LLC).

  • Taxation: Benton Company (BC) Tax Calculations

    206785 Taxation: Benton Company (BC) tax calculations Benton Company (BC) has one owner, who is in the 35% Federal income tax bracket. BC's gross income is $200,000 and its ordinary trade or business deductions are $97,000.

  • Current assets, comprehensive income, personal allowances

    Selecting Personal allowances on a W-4 is a way for an employee to attempt to have an adequate amount of federal (and state) income tax withheld to cover the amount of income earned.

  • Small Business Management and Tax Laws

    498199 Small Business Management and Tax Laws 1.Discuss the impact of a business owner failing to obey tax laws. 2.What are the ethical implications of such failure? 3.From an ethical perspective, is his/her reasoning an acceptable defense?

View More Related Solutions