Marilyn owns all of Bell Corporation€™s stock. Bell is a C corporation and employs 40 people. Marilyn is married, has two dependent children, and files a joint tax return with her husband. She projects that Bell will report $400,000 of pretax profits for the current year. Marilyn is considering five salary levels as shown below. Ignore the U.S. production activities deduction for this problem.

a. Determine the total tax liability for Marilyn and Bell for each of the four proposed salary levels. Assume no other income for Marilyn€™s family, and assume that Marilyn and her husband claim a combined itemized deduction and personal exemption of $30,000. Ignore employment taxes.
b. What recommendations can you make about a salary level for Marilyn that will minimize the total tax liability? Assume salaries paid up to $300,000 are considered reasonable compensation.
c. What is the possible disadvantage to Marilyn if Bell retains funds in the business and distributes some of the accumulated earnings as a dividend in a later tax year?

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Total Income Salary Paid to Marilyn Earnings Retained by Bell Corporation Tax Liability Marilyn Bell CorporationTotal $5 S300,000 S300,000 300,000 300,000 300,000 S100,000 200,000 200,000 100,000 400,000