Boots, Inc. is a "C" corporation engaged in the shoe manufacturing business. Boots is a calendar year, accrual method taxpayer with twong shareholders, Emil and Betty, who are unrelated cash method taxpayeal answering the questions below, assume for convenience that Emil and n each are taxable at a combined federal and state flat rate of 40% on ordinary income and a combined flat rate of 20% on qualified dividends and long capital gains. During the current year, Boots has the following income aa expense items: Income: $2,600,000 Gross profit-sale of inventory. Capital gains. $ 200,000 Expenses and Losses: $ 800,000 $ 800,000 $ 220,000 Operating Expenses. Equipment purchase (100% expensed) under § 168(k) Capital losses (a) Determine Boots, Inc.'s taxable income and its tax liability for the current year. (b) What result in (a), above, if Boots distributes its after-tax profits to Emil and Betty as qualified dividends? (c) What result in (a), above, if instead of paying dividends Boots pays Emil and Betty salaries of $500,000 each? Has the effectiveness of this traditional strategy to reduce the impact of the double tax on corporate earnings changed as a result of the 2017 Act? (d) Consider generally whether there is any advantage to operating Boots as a pass-through entity, such as a partnership, limited liability company, or S corporation and, i1 so, whether Emil and Betty will qualify for the new 20% deduction for qualified business income. What additional facts are necessary to evaluate this option?
Boots, Inc. is a "C" corporation engaged in the shoe manufacturing business. Boots is a calendar year, accrual method taxpayer with twong shareholders, Emil and Betty, who are unrelated cash method taxpayeal answering the questions below, assume for convenience that Emil and n each are taxable at a combined federal and state flat rate of 40% on ordinary income and a combined flat rate of 20% on qualified dividends and long
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