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Rita, a single taxpayer, operates a computer repair shop. She is considering either continuing the business as a sole proprietorship or reorganizing it as
Rita, a single taxpayer, operates a computer repair shop. She is considering either continuing the business as a sole proprietorship or reorganizing it as either a C corporation or an S corporation. Her goal is to withdraw $15,000 of profits from the business annually while minimizing her total tax liability. She expects the business to generate annually $51,000 of taxable income, all of which qualifies as pass-through income before considering a deductible salary expense. (Click the icon to view more information.) Requirement Which business form(s) can best achieve Rita's goals? Complete the table to determine the amount of total tax for each business form. Start with the entity level, then determine Rita's tax and finally the total tax. (Use parentheses or a minus sign for numbers to be subtracted. Complete all input fields. For entries with a $0 balance, make sure to enter "0" in the appropriate column. For simplification purposes, please use a 22% tax rate to calculate the tax on Rita's ordinary income; do not use the tax rate schedules.) Sole C S Corporation Corporation Corporation S Corporation with Proprietorship with Salary Dividend with Salary with Distribution Entity Level: Income before salary Salary deduction Taxable income Entity level tax 51000 51000 51000 51000 51000 15000 15000 15000 15000 15000 36000 36000 51000 36000 36000 5400 5400 7650 0 0
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