Mr. Young operates a photography studio as a sole proprietorship. His average annual income from the business is $100,000. BecauseMr. Young does not need the entire cash flow for personal consumption, he is considering incorporating the business. He will work asa corporate employee for a $40,000 annual salary, and the corporation will accumulate its after-tax income to fund future businessexpansion. For purposes of this case, assume that Mr. Young's marginal income tax rate is 32 percent and ignore any employment taxconsequences.a. Assuming Mr. Young's sole proprietorship does not qualify for the QBI deduction, by how much would Mr. Young's annual tax burdenincrease or decrease by incorporating?b. Assuming Mr. Young's sole proprietorship qualifies for the 20% QBI deduction, by how much would Mr. Young's annual tax burdenincrease or decrease by incorporating?Complete this question by entering your answers in the tabs below.Required A Required BAssuming Mr. Young's sole proprietorship does not qualify for the QBI deduction, by how much would Mr. Young's annual taxburden increase or decrease by incorporating?Mr. Young's tax burden wouldby< Required ARequired B >

Required A: Incorporation with No QBI DeductionScenario: Mr. Young incorporates his business and…

Answered: Mr. Young operates a photography studio…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Sandra would like to organize LAB (a legal corporation) as either an S corporation or a C corporation for tax purposes. In either form, the entity is expected to generate an 8 percent annual before-tax return on a $1,075,000 investment. Sandra's marginal income tax rate is 37 percent and her tax rate on qualified dividends and net capital gains is 20 percent. LAB's income is not qualified business income (QBI), so Sandra is not allowed to claim the QBI deduction. Assume that LAB will distribute all of its earnings after entity-level taxes every year. Ignore the additional Medicare tax and the net investment income tax when computing your answers. Note: Round your intermediate computations to the nearest whole dollar amount. a. How much cash after taxes would Sandra receive from her investment in the first year if LAB is organized as either an S corporation or a C corporation? b. What is the overall tax rate on LAB's income in the first year if LAB is organized as an S corporation or as…
Sandra would like to organize LAB (a legal corporation) as either an S corporation or a C corporation for tax purposes. In either form, the entity is expected to generate an 8 percent annual before-tax return on a $500,000 investment. Sandra's marginal income tax rate is 37 percent and her tax rate on qualified dividends and net capital gains is 20 percent. LAB's income is not qualified business income (QBI), so Sandra is not allowed to claim the QBI deduction. Assume that LAB will distribute all of its earnings after entity-level taxes every year. Ignore the additional Medicare tax and the net investment income tax when computing your answers. Note: Round your intermediate computations to the nearest whole dollar amount. a. How much cash after taxes would Sandra receive from her investment in the first year if LAB is organized as either an S corporation or a C corporation? S corporation C corporation After tax cash flow Show Transcribed Text Mason (single) is a 50 percent shareholder…
Pear, an individual, plans to start a small business, which will operate as a corporation. In year 0, she expects the corporation to generate an ordinary loss of $950,000. Subsequently, she expects the corporation to be profitable, and projects ordinary profit of $1,425,000 in year 1, and $2,375,000 in year 2. Pear's personal marginal tax rate on ordinary income is 37%. Assuming a corporate tax rate of 21% and a 10% discount rate, calculate the present value of expected tax costs on the business earnings for the first 3 years of operations if the business does not make an S corporation election. Assume the excess business loss limitation does not apply. Round your discount rate calculations to three decimal places. O $853,623 O $896,325 O$1.128,600 $502,640
Suzanne is a single mother and a full-time employee of Company A. Her salary is R65,000 a month. Based on the fact that she is a long-standing employee, Company A has granted her son a scholarship of R24,000 for his current Grade 10 year to aid him towards his dream of becoming a chartered accountant. How much of the scholarship is subject to income tax? Select one: O a. R4,000 O b. R24,000 Ос None of it - the entire amount is exempt from income tax O d. R20,000 Thomas is a junior executive at an advertising firm and earned a basic salary of
Kesha, a sole proprietor, is engaged in a cash basis service business. In the current year, she incorporates the business to form Kiwi Corporation. She transfers assets with a basis of $500,000 (fair market value of $1,200,000), a bank loan of $450,000 (which Kiwi assumes), and $80,000 in trade payables in return for all of Kiwi’s stock. What are the tax consequences of the incorporation of the business?
Dennis is a self-employed hair stylist who operates a salon in his home. The property taxes and interest allocated to the business amount to $5,000, maintenance and utilities allocated to the business total $2,100, and depreciation allocated to the business use of the home equals $3,100 for the current tax year. a. If Dennis' gross revenue after deducting supplies for his business is $5,900 for the current tax year, calculate his allowable deductions for the home office. b. If Dennis' gross revenue after deducting supplies for his business is $13,800, calculate his allowable deductions for the home office.
A tax payer is treating real property used solely for business purposes for new real property to be used in his business. The real property originally cost $35,000 and he has taken $18,000 dollars in depreciation. The old real property is currently worth $20,000 dollars and the new real property the taxpayer wants in exchange is only worth $16,500.The other party agrees to get the taxpayer $3500 in addition to the new real property. What is the gain or loss recognized by the taxpayer on this transaction?
Taylor is one of the owners of a firm that generated $76,000 in taxable income last year. They did not have to pay personal tax on their share of the firm's income. Which of the following types of firms is Shawn MOST likely to be a partial owner of? OA. Sole proprietorship. B. Corporation. OC. General partnership. OD. All of the above are possible.
Adam Fleeman, a skilled carpenter, started a home improvement business with Tom Collins, a master plumber. Adam and Tom are concerned about the payroll taxes they will have to pay. Assume they form an S corporation and each earns a salary of $106,000 from the corporation; in addition, they expect their share of business profits to be $88,500 each. How much Social Security tax and Medicare tax (or self-employment tax) will Adam, Tom, and their corporation have to pay on their salary and profits? (Assume Adam and Tom are paying themselves reasonable salaries.) Adam Tom S corporation FICA Tax
Lynette is the CEO of a publicly traded company TT company and earns a salary of $380,000 in the current year. What is TTT Corporation's after-tax cost of paying Lynette's salary excluding FICA taxes?
Joel is the sole shareholder of Mantee Corporation, a C corporation. Because Manatee’s sales have increased significantly over the last several years, Joes has determined that the corporation needs a new distribution warehouse. Joel has asked your advice as to whether (1) Manatee should purchase the warehouse or (2) he should purchase the warehouse and lease it to Manatee. What relevant tax issues will you discuss with Joel?
Andrea would like to organize SHO as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 11 percent annual before-tax return on a $240,000 investment. Andrea’s marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, Andrea will be required to pay an additional 2.9 percent for self-employment tax and an additional .9 percent for the additional Medicare tax. Further, she is eligible to claim the full deduction for qualified business income. Assume that SHO will pay out its all of its after-tax earnings every year as a dividend if it is formed as a C corporation. How much cash after-taxes would Amanda receive from her investment in the first year if SHO is organized as an LLC? Same facts as in Question 1 above. How much cash…

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS