a. Mr. Johnston owns J. Construction Co. and runs it as a proprietorship, had a before-tax income last year of $300,000. His personal and family expenses are $70,000 (among which, $40,000 are business costs) and he has $20,000 in exemptions and deductions. If he paid himself a salary of $ 60,000, would it be advantageous for him to incorporate as a closely-held corporation? Explain/Show work. (Note: consider corporate tax rate = 34%; personal tax rate for proprietorship = 30%, but dropped to 10% after incorporated due to the decrease in personal income).

b. What is the effect of salary on the total amount of tax, considering the tiered tax rate in the table below?

Personal income Tax rate >200,000 30% 150-200k 25% 100-150k 20% 50-100k 15%