You have set up your tax preparation firm as an incorporated business. You took $70,000 from the firm as your salary. The firm's taxable income for the year (net of your salary) was $30,000. How much tax must be paid to the federal government, including both your personal taxes and the firm's taxes? Assume you pay personal taxes as an unmarried taxpayer.

a. By how much will you reduce the total tax bill if you cut your salary to $50,000, thereby leaving the firm with taxable income of $50,000? Use the tax rates presented in Tables 3.5 and 3.7.

b. What allocation will minimize the total tax bill?