Federal Income Tax II

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Critical Thinking

In 2023, Purple Company reports $200,000 in net income before deducting any compensation or other payment to its sole owner, Kirsten. Kirsten is single and she claims the $13,850 standard deduction for 2023 (she has no other deductions). Purple Company is Kirsten's only source of income. Ignoring any employment tax considerations, compute Kirsten's after-tax income if: (LO.I)

a. Purple Company is a proprietorship and Kirsten withdraws $50,000 from the business during the year; Kirsten claims a $37,230 deduction for qualified business income.

b. Purple Company is a C corporation, and the corporation pays out all of its after-tax income as a dividend to Kirsten.

c. Purple Company is a C corporation, and the corporation pays Kirsten a salary of $158,000.