Sonny continues to earn about $700,000 a year in royalities,, etc. from his days

Question

Sonny continues to earn about $700,000 a year in royalities,, etc. from his days with Cher. He asks you for tax advice regarding incorporating or not for the annual receipt of the $700,000.

a. You recommend an S corporation because they're the hot ticket. He can enjoy the coporate form and limited liability and tax rates at the individual rate. Employment taxes and a possible passive tax are no problem.

b. You recommend a C corporation in order to lock up income in the corporation at lower tax brackets. Double tax is no problem.

c. You recommend that he comtinue receive royalties and report them on a 1040. He may purchase liability insurance if worried about liability.

d. None of the above

Explanation / Answer

Ans. B. You recommend a C corporation in order to lock up income in the corporation at lower tax brackets. Double tax is no problem.

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