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Megan operates a housecleaning business as a sole proprietorship. She oversees a team of 1 0 cleaning personnel, markets the business, and provides supplies and
Megan operates a housecleaning business as a sole proprietorship. She oversees a team of cleaning personnel, markets the business, and provides supplies and equipment. The business has been generating net taxable profits of $ per year, before considering the QBI deduction. As a sole proprietor, Megan qualifies for the percent deduction, reducing taxable income from the business to $
Required:
a Assume that Megan's marginal tax rate on ordinary income is percent and that she has no pressing need for cash flow from this business. Should Megan consider incorporating and operating the business through a corporation? Assume that Corporations are subject to a tax rate. Fill the below table to justify your answers. Ignore any payroll or selfemployment tax considerations.
tableIncome tax liability if operated as a C corporationIncome tax savingsShould Megan consider incorporating and operating the business through a C corporation?
b How would your conclusion in part a change if Megan's marginal tax rate were only percent?
Annual tax savings will
to
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