Problem: Module 9 Textbook Problem 8 Learning Objectives: 9.4 Explain tax and nontax considerations in choosing a passthrough entity form 9-6 Explain why individuals once again can use corporations as tax shelters Mr. Lion, who is in the 37 percent tox bracket, is the sole shareholder of Toto Inc, which manufactures greeting cards. Toto's average annual net profit (before deduction of Mr. Lion's salary) is $290,000. For each of the following cases, compute the income tax burden on this profit. Assume that all dividends are taxed to individuals at a 20% tax rate(Ignore any payroll tax consequences.) Required: a. Mr. Lion's salary is $100,000, and Toto pays no dividends. b. Mr. Lion's salary is $100,000, and Toto distributes its after-tax income as a dividend. c. Toto is an S corporation Mr. Lion's salary is $100,000, and Toto makes no cash distributions. Assume Toto's ordinary income qualifies for the 20 percent QBI deduction, subject to no limitations d. Toto is an 5 corporation. Mr. Lion draws no solary, and Toto makes no cash distributions. Assume Toto's ordinary income qualifies for the 20 percent BI deduction, subject to no limitations e. Toto is an Scorporation Mr. Lion draws no salary, and Toto makes cash distributions of all it income to Mr. Lion Assume Toto's ordinary income qualifies for the 20 percent Bi deduction, subject to no limitations Answer is complete but not entirely correct. Amount Income tax burden on this profit 87,400 Income tax burden on this profit 125,320 $ Return to question on this profit. Assume that all dividends are taxed to individuals at a 20% tax rate: (Ignore any payroll tax consequences.) Required: a. Mr. Lion's salary is $100,000, and Toto pays no dividends. b. Mr. Lion's salary is $100,000, and Toto distributes its after-tax income as a dividend, c. Toto is an Scorporation Me Lion's salary is $100,000, and Toto makes no cash distributions. Assume Toto's ordinary income qualifies for the 20 percent QBI deduction, subject to no limitations. d. Toto is an Scorporation. Mr. Llon draws no solary, and Toto makes no cash distributions. Assume Toto's ordinary income qualifies for the 20 percent Bl deduction, subject to no limitations e. Toto is an S corporation, Mr. Lion drows no salary, and Toto makes cash distributions of all its income to Mr. Lion Assume Toto's ordinary income qualifies for the 20 percent oBi deduction, subject to no limitations, Answer is complete but not entirely correct. b C d Income tax burden on this profit Income tax burden on this profit Income tax burden on this profit Income tax burden on this profit Income tax burden on this profit Amount $ 87.400 $ 125,320 $ 108,0403 $ 100,640 S 100,640 e
