Question

A firm now operates as a C-Corporation. The firm has earnings before taxes of $433,743 per year and pays out all its net earnings as dividends. The firm has a corporate tax rate is 24 percent. The firm has only one owner who faces a personal income tax rate of 27 percent. What is the spendable income for the owner of the C-Corporation

Answer 1

The Spending income for the owner of the C-Corporation is:

= $240,641.

Step-by-step explanation:

a) Data and Calculations:

Earnings before taxes = $433,743

Corporate tax rate = 24%

Corporate tax expense = 104,098 ($433,743 * 24%)

Net Earnings after taxes = $329,645

Dividends paid out = $329,645

Retained earnings = $0

Taxable income for the owner of the C-Corporation = $329,645

Income tax rate for the owner of the C-Corporation = 27%

Income tax for the owner of the C-Corporation = $89,004 ($329,645 * 27%)

Spending income for the owner of the C-Corporation = $240,641

b) The owner of this C-Corporation cannot avoid double taxation at the corporate and individual levels. To avoid this, the owner can choose an S-Corporation.