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    Tax Calculated for an 'S' and a 'C' Corporation

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    I2-50 Computation of Tax. Georgia, a single taxpayer, operates a business that produces
    $100,000 of income before any amounts are paid to her. She has no dependents and no
    other income. She has itemized deductions of $18,000. Compute the total income tax that
    would be paid assuming the following additional facts. Ignore payroll taxes.

    a. Georgia operates the business as an S corporation receiving a salary from the corporation
    of $60,000. The corporation distributes all of its remaining income to the shareholders.

    b. She operates the business as a C corporation receiving a salary from the corporation of
    $60,000. The corporation distributes its after tax income to her as a dividend.

    c. How would the total tax change in each of the first two requirements if the corporation
    made no payments to the owner other than the salary?

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    https://brainmass.com/business/accounting/tax-calculated-for-an-s-and-a-c-corporation-159897

    Solution Preview

    Georgia a. As an S corp b. As a C corp c. With salary only as a C corp
    Salary 60000 60000 60000
    Distributions 40000
    Dividends 40000
    Itemized deductions -18000 -18000 -18000
    Personal exemption (2006 -3300 -3300 -3300
    Taxable income ...

    Solution Summary

    The solution compares the difference in total tax between a 'C' and an 'S' where dividends and/or distributions are paid out. A third part of the solution asks for tax differences if the distributions and/or dividends are not paid out.

    $2.19