How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask DanielleCPA Your Own Question

DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 727
Experience:  Years of Experience in Business & Personal Taxes
50747609
Type Your Tax Question Here...
DanielleCPA is online now
A new question is answered every 9 seconds

Benton Company (BC) has one owner, who is in the 35% Federal

Customer Question

Benton Company (BC) has one owner, who is in the 35% Federal income tax bracket.
BC’s gross income is $295,000, and its ordinary trade or business deductions are $135,000.

Compute the tax liability on BC’s income for 2011 under the following assumptions:

a. BC is operated as a proprietorship, and the owner withdraws $70,000 for personal use.

b. BC is operated as a corporation, pays out $70,000 as salary, and pays no dividends to its shareholder.

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

d. BC is operated as a corporation, pays out $70,000 as salary to its shareholder, and pays out the remainder of its earnings as dividends.
Submitted: 2 years ago.
Category: Tax
Expert:  DanielleCPA replied 2 years ago.

Hi and welcome to Just Answer! I'm happy to help with your tax questions. Feel free to interject at any time if you need clarification.

 

 

Net income is $160,000 (295,000-135,000).

 

A) I am making two assumptions here. 1) I am excluding self-employment tax (if I should include, let me know). 2) I am assuming the owner is already in the 35% bracket with his other income, so all of the business income is taxed at 35%. That being said, 35% tax on $160,000 is $56,000. All tax is paid at the owner's personal level - so no corporate tax.

 

B ) Net income here would be $90,000. Tax would be calculated as follows based on corporate tax brackets:

50,000 *15% = 7,500

25,000 * 25% = 6,250

15,000 * 34% = 5,100

So, total corporate tax would be $18,850.

The owner would also need to pay tax on his $70,000 salary at 35%, so $24,500.

 

C) Net income would be $160,000. Tax would be calculated as follows based on corporate tax brackets"

50,000 *15% = 7,500

25,000 * 25% = 6,250

25,000 * 34% = 8,500

60,000 * 39% = 23,400

Total corporate tax = $45,650

 

D) Corporate tax would be $18,850 (same as in B).

The owner would still owe $24,500 in tax on his 70,000 salary (calculated in B)

The dividends would be taxed at qualified dividends rates, currently 15% - so he would owe an additional $13,500 (90,000 dividend * 15%) on the individual level.

 

Customer: replied 2 years ago.

I agree with #a... I have the same answers

 

#b - I got the same for owner tax

 

b. BC is operated as a corporation, pays out $70,000 as salary, and pays no dividends to its shareholder.

 

Don't we have to ignore: PLEASE CONFIRM

any corporate taxes

any state income tax on either the corporation or the individual.

Payroll taxes savings

 

 

#C - Robert will pay no personal income tax because he took no salary or dividends from the corporation. Please confirm.

 

 

 

Expert:  DanielleCPA replied 2 years ago.
If you have to ignore the items listed, your answer to C would be correct.
Customer: replied 2 years ago.

B ) Net income here would be $90,000. Tax would be calculated as follows based on corporate tax brackets:

50,000 *15% = 7,500

25,000 * 25% = 6,250

15,000 * 34% = 5,100

So, total corporate tax would be $18,850.

 

Do you mind explaining this to me? Why did you split the income and used 3 different Tax Rates?

 

Expert:  DanielleCPA replied 2 years ago.

Corporate tax rates, just like individual tax rates, are tiered. Tax rates only apply to income that falls within a particular tax rate. E.g. if you are in the 25% tax bracket, all of your income is not taxed at the 25% rate, only the portion that exceeds the bottom of that tax bracket.

 

Corporate tax brackets are as follows:

$0-$50,000 - 15%

$50,000-75,000 - 25%

$75,000 - $100,000 - 34%

$100,000 - 335,000 - 39%

 

So, because only the portion of income that falls within a particular tax bracket is taxed at a particular rate, we need to break down to calculate. The first $50K is taxed at 15%, the next 25,000 at 25%, and the remaining $15K is taxed at 34%.

DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 727
Experience: Years of Experience in Business & Personal Taxes
DanielleCPA and 6 other Tax Specialists are ready to help you
Customer: replied 2 years ago.

I got it now. I found the Corporate Income Tax Rates and can clearly see what you explained.

 

Thanks

 

I am still reviewing this problem and your solutions so perhaps I am not ready to accept the answer.

Thanks for your understanding.

Expert:  DanielleCPA replied 2 years ago.

I understand you want to make sure you get the right answer. Take your time.

Customer: replied 2 years ago.

Thanks for being so patience with me and answering all my questions.

I just finished reviewing this problem throughly and all your answers which were very helpful. Thanks to your help it was easy for me to understand it.

Expert:  DanielleCPA replied 2 years ago.
You're welcome! I was glad to help.
Customer: replied 2 years ago.

Already accepted answer and paid a tip!

 

Thanks

Expert:  DanielleCPA replied 2 years ago.
Thank you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.