Benton Company: tax liability under different legal forms

Benton Company (BC) has one owner, who is in the 35% Federal income tax bracket. BC's gross income is $295,000, and its ordinary trade or business deductions are $135,000. Compute the tax liability on BC's income for 2011 under the following assumptions:

a. BC is operated as a proprietorship, and the owner withdraws $70,000 for personal use.

b. BC is operated as a corporation, pays out $70,000 as salary, and pays no dividends to its shareholders.

c. BC is operated as a corporation and pays out no salary or dividends to its shareholder.

d. BC is operated as a corporation, pays out $70,000 as salary to its shareholder, and pays out the remainder of its earnings as dividends.

Solution Summary

The 439 word solution discusses each option together with calculations and explanations to more fully understand the concepts.