Problem $3-29$ Tax Rates $($L$04)$

You have set up your tax preparation firm as an incorporated business. You took $$80,000$ from the firm as your salary. The firm's

taxable income for the year $($net of your salary$)$ was $$30,000.$ Assume you pay personal taxes as an unarried taxpayer. Use the tax

rates presented in Table $3\mathrm{.}6.$

a$.$ How much tax must be paid to the federal government, including both your personal taxes and the firm's taxes?

b$.$ By how much will you reduce the total tax bill if you cut your salary to $$50,000,$ thereby leaving the firm with taxable income of

$$60,000?$

c$.$ What allocation will minimize the total tax bill? Hint: Think about marginal tax rates and the ability to shift income from a higher

marginal bracket to a lower one.

Note: Do not round your intermediate calculations. Round your final answers to nearest whole dollar amounts.

a$.$ Total taxes

b$.$ Tax reduction

c$.$ Amount of salary to be paid yourself to minimize the tax bill