You are a new tax staff accountant at a local CPA firm. During your first week on the job a client, Ms. Macchiato, came into the firm seeking tax advice. In particular, Ms. Macchiato owns a small coffee shop, called the No Doze Caf, near the CSU campus. Ms. Macchiato currently operates the No Doze Caf as a sole proprietorship, but is considering incorporating the business as an S corporation. Ms. Macchiato works full-time in the business; if she converts the business to an S corporation, she will pay herself a salary equal to 30% of No Doze Cafs annual income. Ms. Macchiato has hired your firm to prepare an analysis of the tax implications of converting No Doze Caf from a sole proprietorship to an S corporation at varying levels of projected business income.

Your manager has asked you to construct an Excel spreadsheet that will allow you to compare the total federal income tax and payroll/self-employment tax liability due when operating a business as a sole proprietorship as opposed to an S corporation. Use this spreadsheet to calculate the tax consequences to Ms. Macchiato of incorporating No Doze Caf as an S corporation, assuming the business alternatively earns annual taxable income of $75,000, $150,000, or $225,000 (before considering any salary payments to Ms. Macchiato and associated payroll tax expenses)

in your analysis (you may assume that Ms. Macchiato qualifies for the full 20% QBI deduction on eligible income without limitation). Be sure that your analysis incorporates self-employment and payroll taxes, not just federal income taxes. You may ignore any state tax implications. Ms. Macchiato is married and files jointly with her spouse. Assume that the couple does not have enough itemized deductions to itemize, and that they have other sources of income exactly equal to the standard deduction (so you may ignore other income and deductions). The couple does not have children or other dependents.