In addition to owning 100% of Sigmas stock, Brian manages Sigmas business and earns the $80,000 salary listed above. This salary is an ordinary and necessary business expense of the corporation and is reasonable in amount. The payroll tax on Brians $80,000 salary is $12,240, $6,120 of which Sigma pays and deducts, and the other $6,120 of which Brian pays through Social Security withholding. Brian is single with no dependents and claims the standard deduction.

Assume a C corporation distributes all of its after-tax earnings. Compare the tax treatment of long-term capital gains, tax-exempt interest, and operating profits if earned by a C corporation with the tax treatment of these items if earned by a sole proprietorship.

Several years ago, Brian formed Sigma Corporation, a retail company. Sigma uses the accrual method of accounting. In the current year, the corporation reported the following items: Gross profit $290,000 Long-term capital gain 30,000 Tax-exempt interest received 7,000 Salary paid to Brian 80,000 Payroll tax on Brian's salary (Sigma's share) 6,120 Depreciation 25,000 ($21,000 for E&P purposes) Other operating expenses 89,000 Dividend distribution to Brian 60,000