Question

Tawana owns and operates a sole proprietorship and has a 37 percent marginal tax rate. She provides her son, Jonathon, $8,000 a year for college expenses. Jonathon works as a pizza delivery person every fall and has a marginal tax rate of 15 percent. a. What could Tawana do to reduce her family tax burden?

Employ her son in her sole proprietorship
Ask Jonathon to find a new job
Start a new enterprise

Answer 1

The answer is: Employ her son in her sole proprietorship

Step-by-step explanation:

If Tawana employs her son, she can deduct he $8,000 she gives him from her adjusted gross income. She would save $2,960 ($8,000 x 37%) from her income taxes. Sh would probably have to pay her son's taxes which are lower and add up to $1,200.

At the end Tawana would be saving $1,760 ($2,960 - $1,200) which is the difference between her tax rate and her son's tax rate.