How much can Robbie and Dawnnie save as a couple if they run Robbie's business through a partnership arrangement? (Assume that Dawnnie has provided capital and will contribute value to the partnership.) This year, Robbie's business generated $5,777,000 in income and $525,500 in expenses. Your answer should compare the tax implications for Robbie as a sole trader with the tax implications for a partnership between Robbie and Dawnnie.

 

Think about Robbie and Dawnnie and, this time, imagine that the annual income of $5,777,000 is from rent only and annual expenses are still $525,500. Under a signed agreement Sherry will receive 75% of the income and Robbie will receive 25%. How will this be taxed? Show relevant calculations.

 

Robbie and Dawnnie ask you to set up a company for them. 

 

a.         How much tax will they pay under this new arrangement, assuming the same income ($5,777,000) and expenses ($525,500) from running a business? 

b.         Can they take the after-tax profits and use them for their private expenses? If not, why not?

 

Imagine that Robbie and Dawnnie have set up a company to receive the income. What happens if they are providing personal services through this company but fail to establish the business as a personal services business?