Question

Kiyara (single) is a 50 percent shareholder of Guardian Corporation (an S corporation). Kiyara does not do any work for Guardian Corporation. Guardian Corporation reported $342,000 of business income for the year (2022). Before considering her business income allocation from Guardian Corporation and the self-employment tax deduction (if any), Kiyara's adjusted gross income was $292,000 (all employee salary). Kiyara has $42,100 in itemized deductions. Answer the following questions for Kiyara:

Option A: $8,119.50
Option B: $10,234.00
Option C: $6,887.00
Option D: $12,345.67

Answer 1

Based on Kiyara's $463,000 adjusted gross income after deductions, her taxable income would be $420,900. At a 34% tax rate for that income bracket, she would owe $143,106, which does not match any of the provided options.

Step-by-step explanation:

Kiyara's share of the S corporation income would be 50% of the $342,000 business income reported by Guardian Corporation, which is $171,000. If we add this to her adjusted gross income of $292,000 (all employee salary), her new adjusted gross income becomes $463,000. Since Kiyara has $42,100 in itemized deductions, her taxable income will be $463,000 - $42,100 = $420,900.

Referring to the basic concepts of taxation, her tax liability would fall into the range that has a flat tax rate. According to the tax rate structure given, incomes between $335,000 to $10,000,000 incur a 34% tax rate. Consequently, Kiyara's tax owed would be 34% of $420,900, which equates to $143,106.

However, the provided options (A, B, C and D) do not match this calculated tax. It seems the multiple-choice options may relate to a specific tax credit or deduction that is not fully explained in the provided information. Therefore, based on the given data and the standard rules of taxation, none of the provided options (A: $8,119.50, B: $10,234.00, C: $6,887.00, D: $12,345.67) is correct for the total tax owed by Kiyara.