Question

Carol, a single taxpayer, operates a computer repair shop. She is considering either continuing the business as a sole proprietorship or reorganizing it as either a C corporation or an S corporation. Her goal is to withdraw $17,000 of profits from the business annually while minimizing her total tax liability. She expects the business to generate annually $47,000 of taxable income, all of which qualifies as pass-through income before considering a deductible salary expense. (Click the icon to view more information.) Requirement Which business form(s) can best achieve Carol's goals? Complete the table to determine the amount of total tax for each business form. Start with the entity level, then determine Carol's tax and finally the total tax (Use parentheses or a minus sign for numbers to be subtracted. Complete all input fields. For entries with a $0 balance, make sure to enter "0" in the appropriate column. For simplification purposes, please use a 22% tax rate to calculate the tax on Carol's ordinary income; do not use the tax rate schedules.) Sole Proprietorship C Corporation C Corporation S Corporation with Salary with Dividend with Salary Corporation with Distribution Entity Level: Income before salary $ 47,000 Salary deduction 47,000 $ 0 47,000 $ o's 47,000 $ (17,000) 30,000 $ 6,300's 47,000 $ 0 47,000 $ 9,870's 47,000 $ (17,000) 30,000 $ 47,000 Taxable income Entity level tax Carol: Pass-through income Qualified business income deduction Salary income Dividend income Total income to Carol Carol's tax

Answer 1

	Sole proprietorship	C corporation with salary	C Corporation with Dividend	S corporation with salary	S Corporation with Distribution
Carol
Pass-through income	47000			30000	47000
Qualified business income deduction (20%)	9400			6000	9400
Salary income		17000		17000
Dividend income			17000
Total income to carol	37600	17000	17000	41000	37600
Carol’s tax	$8272	$3740	$0	$9020	$8272

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