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Lois and Clark are both single and neither one has any dependents. They are 5 0 percent co - owners of a new business, and
Lois and Clark are both single and neither one has any dependents. They are percent coowners of a new business, and they are trying to decide whether to organize the business as a partnership or a C corporation. They know that one of the factors to consider is the tax impact of the organizational form. Compute the income tax payable by Lois and Clark and by their business entity. Lois will receive an annual salary from the business of $ Clark will receive an annual salary of $ Their only other source of income is their share of business profit. Both use the standard deduction, which is $ for a single individual in
The business net income after salaries will pass through to Lois and Clark in equal amounts if their business is organized as a partnership. Remember to consider the Qualified Business Income Deduction section A related to partnership income. The business is not involved in a service trade or business such as accounting, health, or law. None of the income qualifies as selfemployment income. The W wages of the business, paid to employees other than Lois and Clark, will be $ The unadjusted basis of the assets of the business, immediately after they were placed in service, is $
Put your answers to the following questions into the accompanying answer sheet. Note that the second tab of the answer sheet is a individual tax calculator. For any taxable income entered in row of columns F through O the spreadsheet will return the income tax in row
Compute the taxes payable by Lois and Clark assuming their business is a partnership that earns the following amounts of net income after their guaranteed payments of $ and $ Then compute the tax payable by Lois, Clark, and the corporation assuming the same business income amounts after salaries:
A $
B $
The computation should be of the tax only. Ignore carryforwards or carrybacks to other years.
Based on your findings, what do you recommend to Lois and Clark?
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