June and John decide to form a business.They each plan to contribute $20,000 in exchange for a 50 percent interest in the business.They will then take out a bank loan for $30,000 to cover the balance of their working capital needs.They expect that the business will make a profit of $64,000 in the first year and that it will not make any cash distributions that year. Excluding the business income, June, who files as head of household, has $400,000 of other taxable income. John is married and files a joint return; he and his wife have $90,000 of other taxable income.They want to know how much tax the business will pay and how much additional tax they will personally pay in 2007 if they form the business as a partnership, S corporation, or C corporation. Consider only income taxes.

AppendixLO1