Question

Bulldog Corporation reported taxable income of $500,000 this year, before any deduction for any payment to its sole shareholder and employee, Georgia Brown. Bulldog chose to pay a bonus of $100,000 to Georgia at year-end. The bonus meets the requirements to be "reasonable" and is therefore deductible by Bulldog. Georgia is subject to a marginal tax rate of 35 percent on the bonus. What is the income tax imposed on the corporate income earned by Bulldog and the income tax on the bonus paid to Georgia?

Answer 1

Income tax imposed on the corporate income earned by Bulldog $105,000

Income tax on the bonus paid to Georgia $35,000

Step-by-step explanation:

Corporate tax:

Taxable income $600,000- Bonus $100,000

=$500,000

Hence:

500,000 × 21% =$105,000

Shareholder tax:

100,000 × 35= $35,000

Total income tax $140,000

Therefore the income tax imposed on the corporate income earned by Bulldog is $105,000 and the income tax on the bonus paid to Georgia is $35,000