Final answer:
Pear Company will pay corporate income tax on $194,000 after deducting expenses and salary. Steven will pay personal income tax on his $96,000 salary, and both will also owe payroll taxes on that salary.
Step-by-step explanation:
The taxation question you've presented revolves around a C corporation's operating income and the salary of its owner/CEO. Pear Company has an operating income of $420,000 with operating expenses of $130,000. When the owner, Steven, withdraws a salary of $96,000, we need to compute the corporate income tax and the individual income tax on his salary to understand the tax consequences.
To calculate the company's taxable income, we deduct the operating expenses and Steven's salary from the operating income:
- Operating Income: $420,000
- Operating Expenses: -$130,000
- Salary to Steven: -$96,000
- Taxable income for the corporation : $194,000
According to the provided tax rate structure, incomes from $335,000 to $10,000,000 are taxed at a flat 34%. Since the corporation's taxable income is $194,000, it falls below this bracket. We would need the specific tax rate for this income level, which was not provided, but generally, it would be lower than the 34% rate.
On an individual basis, Steven would need to report his salary as personal income. He will be taxed at the applicable individual income tax rate for the $96,000 salary. Additionally, both Steven and Pear Company will be responsible for payroll taxes on the $96,000 salary.
To summarize, Pear Company will pay corporate income tax on $194,000, and Steven will pay personal income tax on his $96,000 salary. The rate of these taxes would depend on the respective corporate and individual tax brackets that apply.