Question: Mabel and Alan, who are in the 35% tax bracket, recently acquired a fast-food franchise. Both of them will work in the business and receive

Mabel and Alan, who are in the 35% tax bracket, recently acquired a fast-food franchise. Both of them will work in the business and receive a salary of $175,000. They anticipate that the annual profits of the business, after deducting salaries, will be approximately $450,000. The entity will distribute enough cash each year to Mabel and Alan to cover their Federal income taxes associated with any flow-through income from the franchise.
a. What amount will the entity distribute if the franchise operates as a C corporation?
b. What amount will the entity distribute if the franchise operates as an S corporation?
c. What will be the amount of the combined entity/owner tax liability in (a) and (b)?

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a The corporate tax liability on taxable income of 450000 is 153000 for the C Corporation 50000 15 7... View full answer

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