Question

Prior to the passage of the Tax Cuts and Jobs Act of 2017, the owners of sole proprietorships would pay ________ on their profits. Group of answer choices the corporate income

A. tax the federal personal income
B. tax the progressive excise tax
C. no tax

Answer 1

Before the Tax Cuts and Jobs Act of 2017, sole proprietors paid the federal personal income tax on their business profits, not the corporate income tax. The social security tax is considered regressive. The correct option is A.

Step-by-step explanation:

Prior to the passage of the Tax Cuts and Jobs Act of 2017, the owners of sole proprietorships would pay the federal personal income tax on their profits. Since sole proprietorships are not incorporated entities, they do not pay corporate income tax. Instead, the owner's business profits are reported on their personal income tax return, and they are taxed accordingly. This structure is different from a corporation, where the company itself pays corporate income tax on its profits, and the individual would also pay income tax on their salary. Furthermore, the social security tax, which is 6.2% on employees' income earned below $113,000, is a regressive tax because it does not proportionately affect higher income earners above that threshold.

Prior to the passage of the Tax Cuts and Jobs Act of 2017, owners of sole proprietorships would pay no tax on their profits.