Mike and Casey are siblings that have started their own business. When they first created their business, they formed an S Corporation. They are considering changing to a C Corporation and but first want to know the tax implications to each of them individually as well as the corporation.

Mike owns 55% and Casey owns 45% of the business. Mike works full-time at the business and takes a salary of $40,000.

• For 2019, they expect their profits to be $300,000 before paying a salary to Casey.
• They also plan on taking a total distribution of $80,000 (allocated based on ownership percentage)
• For this project, assume that all business transactions are cash transactions.
• All business income of the S Corporation is eligible for Section 199A deduction for Mike and Casey.
• Mike and Casey also have other sources of income, which you will ignore, except that you need to know that Mikes marginal tax rate is 37% and Caseys marginal tax rate is 12%.
• You can ignore all self-employment taxes.

C Corporation:

Keep the same fact pattern as above but instead they would receive an ordinary dividend rather than distribution, but amount would be the same.

C Corporation	Mike	Casey
How much cash will each receive from S Corp?
What is dividend income?
What is total income reported on Form 1040?
What is the Section 199A deduction (if applicable)?
What is taxable income* on Form 1040?