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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 50 percent co-owners 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 2023 income tax payable by Lois and Clark and by their business entity. Lois will receive an annual salary from the business of $120,000. Clark will receive an annual salary of $80,000. Their only other source of income is their share of business profit. Both use the standard deduction, which is $13,850 for a single individual in 2023.
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 199A) 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 self-employment income. The W-2 wages of the business, paid to employees other than Lois and Clark, will be $300,000. The unadjusted basis of the assets of the business, immediately after they were placed in service, is $2,000,000.
Put your answers to the following questions into the accompanying answer sheet. Note that the second tab of the answer sheet is a 2023 individual tax calculator. For any taxable income entered in row 11 of columns F through O, the spreadsheet will return the income tax in row 12.
1. 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 $120,000 and $80,000). Then compute the tax payable by Lois, Clark, and the corporation assuming the same business income amounts (after salaries):
A $500,000.
B. $1,000,000.
The computation should be of the 2023 tax only. Ignore carryforwards or carrybacks to other years.
2. Based on your findings, what do you recommend to Lois and Clark?

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