Moana is a single taxpayer who operates a sole proprietorship. She expects her taxable income next year to be $250,000, of which $200,000 is attributed to her sole proprietorship. Moana is contemplating incorporating her sole proprietorship.

A- Using the single individual tax brackets and the corporate tax rate in Appendix C, find out how much current tax this strategy could save Moana (ignore any Social Security, Medicare, or self-employment tax issues).

B How much income should be left in the corporation?

Corporate tax rate is 21%

Appendix C

Individuals Schedule X-Single Schedule Z-Head of Household If taxable income is But not If taxable income is But not over: over: The tax is: over: over: The tax is: $ 0 $ 9,950 10% of taxable income $ 0 $ 14,200 $ 9,950 $ 40,525 $995 plus 12% of the excess over $9,950 $ 14,200 $ 54,200 $ 40,525 $ 86,375 $ 54,200 $ 86,350 $4,664 plus 22% of the excess over $40,525 $ 14,751 plus 24% of the excess over $86,375 10% of taxable income $1,420 plus 12% of the excess over $14,200 $6,220 plus 22% of the excess over $54,200 $13.293 plus 24% of the excess over $86,350 $ 86,375 $164,925 $ 86,350 $164,900 $164.925 $209,425 $164.900 $209,400 $32,145 plus 32% of the excess over $164,900 $209,425 $523,600 $209,400 $523,600 $33,603 plus 32% of the excess over $164,925 $47,843 plus 35% of the excess over $209,425 $157,804.25 plus 37% of the excess over $523,600 $46,385 plus 35% of the excess over $209,400 $156,355 plus 37% of the excess over $523,600 $523,600 $523,600