Question

If an individual owns a corporation for which he is the only employee, which different types of federal tax will he have to pay?

a) Income tax only
b) Income tax and corporate tax
c) Corporate tax only
d) Payroll tax only

Answer 1

The owner of a sole-employee corporation will pay corporate income tax, individual income tax, and payroll tax. These are different from the taxes paid by self-employed individuals running an unincorporated business.

Step-by-step explanation:

An individual who owns a corporation and is the only employee typically must pay corporate income tax on the corporation's profits, individual income tax on their salary from the corporation, and payroll tax on the wages paid to themselves as an employee. Corporations, regarded as separate entities, are subject to their own federal tax brackets. Additionally, individuals must adhere to different tax requirements when involved in a sole proprietorship that is not incorporated.

If an individual owns a corporation for which he is the only employee, he will have to pay corporate income tax on the profits earned by the company. Additionally, he will have to pay individual income tax on his salary as an employee of the corporation. Lastly, he will have to pay payroll tax, which includes social security and Medicare taxes, on the wages he pays himself.