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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?

#### 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