Red Company has approximately $250,000 in net income before deducting any compensation or other payment to its sole owner, Teri (who is single). Assume that Teri is in the 35% marginal tax bracket. Discuss the tax aspects of each of the following arrangements. (Ignore any employment tax considerations.)

(I) Teri operates Red Company as a proprietorship.

(II) Teri incorporates Red Company and pays herself a salary of $150,000 and no dividend.

(III) Teri incorporates the company and pays herself a $150,000 salary and a dividend of $77,750 ($100,000 - $22,250 corporate income tax).

(IV) Teri incorporates the company, and pays herself a salary of $250,000.