Ellie and Jessica are siblings that have started their own business. When they first created their business, they formed an S Corporation. They are considering, from a tax perspective, how things would look differently if they changed to a C Corporation.

• Ellie owns 35% and Jessica owns 65% of the business. Ellie works full-time at the business and takes a salary of $55,000.
• For 2019, they expect their profits to be $225,000 before paying a salary to Ellie.
• They also plan on taking a $13,000 total distribution (allocated based on ownership percentage).
• For this project, assume that all business transactions are cash transactions.
• All business income of the S Corporation is eligible for Section 199A deduction for Ellie and Jessica.
• Ellie and Jessica also have other sources of income, which you will ignore, except that you need to know that Ellies marginal tax rate is 24% and Jessicas marginal tax rate is 32%.
• You can ignore all self-employment taxes.

C Corporation:

Keep the same fact pattern as above but instead they would receive an ordinary dividend rather than distribution, but amount would be the same.

C Corporation	Ellie	Jessica
How much cash will each receive from S Corp?
What is the ordinary income on K-1?
What is total income reported on Form 1040?
What is taxable income* on Form 1040?
What is the income tax?
How much cash would be left after paying taxes?

*you can ignore above the line deductions and standard/itemized deductions