Purple Company has $200,000 in net income for 2018 before deducting any compensation or other payment to
Question:
Purple Company has $200,000 in net income for 2018 before deducting any compensation or other payment to its sole owner, Kirsten. Kirsten is single, and she claims the $12,000 standard deduction for 2018. Purple Company is Kirsten’s only source of income. Ignoring any employment tax considerations, compute Kirsten's after-tax income if:
a. Purple Company is a proprietorship and Kirsten withdraws $50,000 from the business during the year; Kirsten claims a $40,000 deduction for qualified business income ($200,000 X 20%).
b. Purple Company is a C corporation and the corporation pays out all of its after tax income as a dividend to Kirsten.
c. Purple Company is a C corporation and the corporation pays Kirsten a salary of $158,000.
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Step by Step Answer:
If Purple Company is a proprietorship Kirsten must report net income of 200000 regardless of the amo...View the full answer
South-Western Federal Taxation 2019 Comprehensive
ISBN: 9781337703017
42th Edition
Authors: David M. Maloney, William A. Raabe, William H. Hoffman, James C. Young
