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Megan operates a housecleaning business as a sole proprietorship. She oversees a team of 10 cleaning personnel, markets the business, and provides supplies and equipment.
Megan operates a housecleaning business as a sole proprietorship. She oversees a team of 10 cleaning personnel, markets the business, and provides supplies and equipment. The business has been generating net taxable profits of $63,000 per year, before considering the QBI deduction. As a sole proprietor, Megan qualifies for the 20 percent deduction, reducing taxable income from the business to $50,400. a. Assume that Megan's marginal tax rate on ordinary income is 35 percent and that she has no pressing need for cash flow from this business. Should Megan consider incorporating and operating the business through a C corporation? Fill the below table to justify your answers. (Ignore any payroll or self-employment tax considerations.) Income tax liability if operated as a C corporation Income tax savings Should Megan consider incorporating and operating the business through a C corporation? per year b. How would your conclusion in part a change if Megan's marginal tax rate were only 28 percent? Annual tax savings will to
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