Question

Crocker and company (cc) is a c corporation based in the united states. for the year, cc reported taxable income of $558,500. at the end of the year, cc distributed all its after-tax earnings to jimmy, the company's sole shareholder. jimmy's marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent, including the net investment income tax. what is the overall amount jimmy will have after all taxes?

Answer 1

After calculating the corporate tax at a rate of 34% and then the dividend tax at a rate of 23.8%, Jimmy will have $280,880.82 after all taxes are paid.

Step-by-step explanation:

To determine the overall amount Jimmy will have after all taxes, we need to calculate the taxes paid by Crocker and Company (CC), and then the taxes on the dividends received by Jimmy. According to the tax policy information provided, CC would be taxed at a flat corporate tax rate of 34% for income from $335,000 to $10,000,000. Hence, the corporate tax CC owes would be 34% of $558,500, which amounts to $189,890. CC's after-tax income would then be $558,500 - $189,890 = $368,610. This sum is then distributed to Jimmy as dividends.

Jimmy's dividend tax rate, including the net investment income tax, is 23.8%. Therefore, the taxes on the dividends would be 23.8% of $368,610, which equals $87,729.18. After paying taxes on dividends, Jimmy's after-tax dividend income would be $368,610 - $87,729.18 = $280,880.82. This is the amount Jimmy will have after all taxes are paid.