Mr. Lion, who is in the 39.6 percent tax bracket, is the sole shareholder of Tot

Question

Mr. Lion, who is in the 39.6 percent tax bracket, is the sole shareholder of Toto, which manufactures greeting cards. Toto's average annual net profit (before deduction of Mr. Lion's salary) is $270,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.) Use Corporate tax rate schedule. a. Mr. Lion's salary is $100,000, and Toto pays no dividends. b. Mr. Lion's salary is $100,000, and Toto distributes its after-tax income as c. Toto is an S corporation. Mr. Lion's salary is $100,000, and Toto makes d. Toto is an S corporation. Mr. Lion draws no salary, and Toto makes no e. Toto is an S corporation. Mr. Lion draws no salary. and Toto makes cash a dividend no cash distributions cash distributions. distributions of all its income to Mr. Lion. a Income tax burden on this proft b. Income tax burden on this profit c Income tax burden on this profit d Income tax burden on this profit e. Income tax burden on this profit ?Prev 17 of 21111 Next > ere to search

Explanation / Answer

a. Corporate of Taxable Income(after Salary Deduction) $170,000.00 Corporate Tax on $170000 (a) $49,550.00 Mr. Lion's Tax ( $100000 Salary*39.6%) (b) $39,600.00 Tax Burdon on Profit (a+b) $89,150.00 b. Corporate of Taxable Income(after Salary Deduction) $170,000.00 Corporate Tax on $170000 (a) $49,550.00 Mr. Lion's Tax on Salary ( $100000 Salary*39.6%) (b) $39,600.00 Mr. Lion's Tax on Dividend( $120450*20%) © $24,090.00 Tas Burdon on Profit (a+b+c) $113,240.00 c. Corporate Ordinary Income(after Salary Deduction) $170,000.00 Mr. Lion's Tax Burdon $106,920.00 ($100000 Salary+ $170,000 Corporate Income)*39.6% d. Corporate Ordinary Income $270,000.00 Mr. Lion's Tax Burdon $106,920.00 ( $270,000 Corporate Income)*39.6% e. Corporate Ordinary Income $270,000.00 Mr. Lion's Tax Burdon $106,920.00 ( $270000 Corporate Income)*39.6%

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