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 $1,650,000. Subsequently, she expectsthe corporation to be profitable, and projects ordinary profit of $2,475,000 in year 1, and$4,125,000 in year 2. Pear's personal marginal tax rate on ordinary income is 37 Assuming acorporate tax rate of 21% and a 10% discount rate, calculate the present value of expected taxcosts on the business earnings for the first 3 years of operations if the business makes an Scorporation election. Assume the excess business loss limitation does not apply. Round yourdiscount rate calculations to three decimal places.$1,556,775$1,482,599$1,960,200$873,015

Present value is the concept of time, the value of money which defines the money present today is…

Answered: Pear, an individual, plans to start a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lena is the sole shareholder and president of Gold Corporation, which is a C Corporation. She feels that she can justify paying herself a $50,000 bonus this year because of her excellent performance for the company. However, rather than a bonus, she considers having Gold pay her a $50,000 dividend. She believes this would be preferable because it will be taxed at only 15% as a “qualified dividend” instead of being taxed at her marginal income tax rate of 35% as a bonus. Assuming that Gold Corporation is in the 21% federal tax bracket, how much federal income tax could Lena save by taking the bonus?Given that Lena owns 100% of Gold Corporation you should analyze this decision from both the corporation and individual tax perspectives (an “integrated” analysis). You can ignore any state or social security tax considerations. Reminder: dividends paid by a C Corporation are nondeductible for federal income tax purposes.
Leona, whose marginal tax rate on ordinary income is 37 percent, owns 100 percent of the stock of Henley Corporation. This year, Henley generates $1 million of taxable income. If Henley wants to pay all of its after-tax earnings to Leona as a dividend, calculate the amount of the dividend payment. Calculate Leona’s tax due on the dividend computed in part a, and her after-tax cash flow from the dividend receipt. Compute the combined corporate and individual tax burden on Henley’s $1 million of current year income, and the effective combined tax rate on this income.
Discuss the law that applies to this issue and then answer the questions at the end of the paragraph.
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.) a) Using the married-joint tax brackets and corporate tax rate, find out how much current tax this strategy could save Orie and Jane. b) How much income should be left in the corporation?
n each of the following cases, discuss how the taxpayers might respond to a tax rate increase in a manner consistent with the income effect. a. Mr. Edwards earns $32,000 a year as an employee, and Mrs. Edwards doesn’t work.b. Mr. Frank earns $22,000 a year as an employee, and Mrs. Frank earns $10,000 a year as a self-employed worker.c. Mr. George earns $22,000 a year as an employee, and Mrs. George earns $10,000 a year as an employee.
Samuel Jenkins made two invstments, the first was 13 months ago and the second was two months ago. He just sold both investments and has a capital gain of $3,000 on each. If Samuel is in the 28 percent tax bracket, what will be the amount of capital gains tax on each investment?
Amy is single with a salary of $50,000. She has been offered a new position that will raise her salary to $53,000. The cut-off between the 18% and 25% tax brackets is $51,250. How much will her tax liability increase if she accepts the new position?
Allie received a $50,000 distribution from her 401(k) account this year that she established while working for Big Stories, Incorporated. Assume that her marginal ordinary tax rate is 24 percent. a. Allie is 45 and still employed with Big Stories, Incorporated. How much tax and penalty will Allie pay on the distribution? b. Allie is 56 and was terminated from Big Stories, Incorporated this year. How much tax and penalty will Allie pay on the distribution? c. Allie is 67 and retired. How much tax and penalty will Allie pay on the distribution?
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 sas3,623 O $896,325 O $1.128,600 O $502.640
Diana sold mutual fund shares she had owned 4 years so that she could use the proceeds to travel across Europe with her son. Diana is in the 35% marginal tax bracket and her capital gains from this sale were $24,230. How much tax would Diana owe on those gains? (Report an integer)
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 $350,000 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 0.9 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 all of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Do not round intermediate calculations and round your final answers to the nearest whole dollar.) a. How much cash after taxes would Andrea receive from her investment in…
If Isabella Rodriguez is single and in the 22 percent tax bracket, calculate the tax associated with each of the following transactions. (Hint: Use the IRS regulations for capital gains in effect in 2018.) Treat each of the following cases as independent of the others. Tax savings should be preceded by a "-" sign. Round the answers to the nearest cent. She sold stock for $3,025 that she purchased for $2,500 3 months earlier. $ She sold bonds for $3,000 that she purchased for $2,500 3 years earlier. $ She sold stock for $3,080 that she purchased for $4,000 20 months earlier. Assume this to be the only Stock in Isabella's portfolio. $

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