Bob Loblaw and Wayne Jarvis get together to form a new corporation. They each own 50% of the stock. Neither is employed by the corporation. In the first year of operation, the corporation generates $1 million of taxable income and pays $100,000 in dividends ($50,000 each to Bob and Wayne). Assuming a 21% corporate tax rate, a 35% personal tax rate on ordinary income, and a 15% personal tax rate on dividends, how much corporate and personal tax will be paid? (Say the name “Bob Loblaw” three times. It will make you laugh. Go ahead.)
Corporate tax ______________________
Bob and Wayne each pay tax ____________________
C. Same as B) but now assume that instead of a corporation they form a partnership. Instead of receiving dividends, Bob and Wayne each withdraw $50,000 from the partnership (also known as a “draw”).
Partnership tax ______________________
Bob and Wayne each pay tax ____________________