Genesis Company (GC), a calendar year entity, has one owner, who is in the 37% Federal income tax bracket (any net capital gains or dividends would be taxed at a 20% rate). GC’s gross income is $395,000, and its ordinary trade or business deductions are $245,000. Compute the Federal income tax liability on GC’s income for the current year under the following assumptions. Ignore the standard deduction (or itemized deductions) and the deduction for qualified business income.

a. GC is operated as a proprietorship, and the owner withdraws $100,000 for personal use.

b. GC is operated as a corporation, pays out $100,000 as salary, and pays no dividends to its shareholder.

c. GC is operated as a corporation and pays out no salary or dividends to its shareholder.

d. GC is operated as a corporation, pays out $100,000 as salary to its shareholder, and pays out the remainder of its earnings as dividends.

e. Assume that Raphael Genesis of 1121 Monroe Street, Ironton, OH 45638 is the owner of GC, which was operated as a proprietorship. Raphael is thinking about incorporating the business for next year and asks your advice. He expects about the same amounts of income and expenses and plans to take $100,000 per year out of the company whether he incorporates or not. Based on your analysis in parts (a) and (b), write a letter to Raphael containing your recommendations.