Orie and Jane, husband and wife, operate a sole proprietorship. They expect their taxable income next year to be $450,000, of which $250,000 is attributed to the sole proprietorship. Orie and Jane are contemplating incorporating their sole proprietorship. (Use the tax rate schedule.) Required: a. Using the married-joint tax brackets and the corporate tax rate, find out how much current tax this strategy could save Orie and Jane. Note: Do not round your intermediate calculations. Round your final answer to the nearest whole dollar amount. b. How much income should be left in the corporation?
Orie and Jane, husband and wife, operate a sole proprietorship. They expect their taxable income next year to be $450,000, of which $250,000 is attributed to the sole proprietorship. Orie and Jane are contemplating incorporating their sole proprietorship. (Use the tax rate schedule.) Required: a. Using the married-joint tax brackets and the corporate tax rate, find out how much current tax this strategy could save Orie and Jane. Note: Do not round your intermediate calculations. Round your final answer to the nearest whole dollar amount. b. How much income should be left in the corporation?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Solve question in image with any calculations worked out
Transcribed Image Text:Orie and Jane, husband and wife, operate a sole proprietorship. They expect their
taxable income next year to be $450,000, of which $250,000 is attributed to the sole
proprietorship. Orie and Jane are contemplating incorporating their sole proprietorship.
(Use the tax rate schedule.)
Required:
a. Using the married-joint tax brackets and the corporate tax rate, find out how much
current tax this strategy could save Orie and Jane.
Note: Do not round your intermediate calculations. Round your final answer to the
nearest whole dollar amount.
b. How much income should be left in the corporation?
Schedule Y-1-Married Filing Jointly or Qualifying Widow(er)
If taxable income is over: But not over:
$ 0
$ 20,550
$ 83,550
$ 178,150
$ 340,100
$ 431,900
$ 647,850
$ 20,550
$ 83,550
$ 178,150
$340,100
$431,900
$647,850
The tax is:
10% of taxable income
$2,055 plus 12% of the excess over $20,550
$9,615 plus 22% of the excess over $83,550
$30,427 plus 24% of the excess over $178,150
$69,295 plus 32% of the excess over $340,100
$98,671 plus 35% of the excess over $431,900
$174,253.50 plus 37% of the excess over $647,850
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