Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 12, Problem 14AP
Ms. Xie, who is in the 37 percent tax bracket, is the sole shareholder and president of Xenon. The corporation’s financial records show the following.
- a. Compute the combined tax cost for Xenon and Ms. Xie. (Ignore payroll tax.)
- b. How would your computation change if Ms. Xie’s salary was $500,000 and Xenon paid no dividends?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Ms. Xie, who is in the 37 percent tax bracket, is the sole shareholder and president of Xenon. The corporation's financial records show
the following:
Gross income from sales of goods
Operating expenses
$1,590,000
(930,000)
(300,000)
(200,000)
Salary paid to Ms. Xie
Dividend distributions
a. Compute the combined tax cost for Xenon and Ms. Xie. (Ignore payroll tax.)
b. How would your computation change if Ms. Xie's salary was $500,000 and Xenon paid no dividends?
Answer is not complete.
Complete this question by entering your answers in the tabs below.
Required A
Required B
Compute the combined tax cost for Xenon and Ms. Xie. (Ignore payroll tax.)
Xenon's tax
$
360,000 X
Ms. Xie's tax on salary
111.000✔
Ms. Xie's tax on dividend
40.000 ✓
Total income tax cost
511,000
Ms. Xie, who is in the 37 percent tax bracket, is the sole shareholder and president of Xenon. The corporation's financial records show the following:
Gross income from sales of goods
Operating expenses
Salary paid to Ms. Xie
Dividend distributions
$ 1,590, 000
(930,000 )
(300,000)
(200,000)
Required:
a. Compute the combined tax cost for Xenon and Ms. Xie. (Ignore payroll tax.)
b. How would your computation change if Ms. Xie's salary was $500,000 and Xenon paid no dividends?
For Requirement A, what is Xenon’s tax?
For Requirement B, What is Xenon’s tax?
Ms. Xie, who is in the 37 percent tax bracket, is the sole shareholder and president of Xenon. The corporation's financial records show the following:
Gross income from sales of goods: 1,590,000
Operating expenses: (930,000)
Salary paid to Ms. Xie: (300,000)
Dividend distributions: (200,000)
Required:
a. Compute the combined tax cost for Xenon and Ms. Xie. (Ignore payroll tax.)
b. How would your computation change if Ms. Xie's salary was $500,000 and Xenon paid no dividends?
Chapter 12 Solutions
Principles Of Taxation For Business And Investment Planning 2020 Edition
Ch. 12 - Mr. and Mrs. Velotta are self-employed...Ch. 12 - Prob. 2QPDCh. 12 - Ms. Johnson is eager to create a family...Ch. 12 - Discuss the tax and nontax reasons why the stock...Ch. 12 - Mr. Eros operates an antique store located on the...Ch. 12 - Prob. 6QPDCh. 12 - Prob. 7QPDCh. 12 - Prob. 8QPDCh. 12 - Prob. 9QPDCh. 12 - Prob. 10QPD
Ch. 12 - Prob. 11QPDCh. 12 - Ms. Knox recently loaned 20,000 to her closely...Ch. 12 - Explain the logic of the tax rate for both the...Ch. 12 - Prob. 14QPDCh. 12 - Prob. 15QPDCh. 12 - Prob. 16QPDCh. 12 - Mr. Tuck and Ms. Under organized a new business as...Ch. 12 - Grant and Marvin organized a new business as a...Ch. 12 - Prob. 3APCh. 12 - Ms. Kona owns a 10 percent interest in Carlton...Ch. 12 - Mrs. Franklin, who is in the 37 percent tax...Ch. 12 - Prob. 6APCh. 12 - Prob. 7APCh. 12 - Prob. 8APCh. 12 - Prob. 9APCh. 12 - Prob. 10APCh. 12 - Prob. 11APCh. 12 - Prob. 12APCh. 12 - Prob. 13APCh. 12 - Ms. Xie, who is in the 37 percent tax bracket, is...Ch. 12 - Prob. 15APCh. 12 - In 1994, Mr. and Mrs. Adams formed ADC by...Ch. 12 - Prob. 17APCh. 12 - Prob. 18APCh. 12 - Prob. 19APCh. 12 - Prob. 20APCh. 12 - Prob. 21APCh. 12 - Prob. 1IRPCh. 12 - Prob. 2IRPCh. 12 - Prob. 3IRPCh. 12 - REW Inc. is closely held by six members of the REW...Ch. 12 - Prob. 5IRPCh. 12 - Prob. 6IRPCh. 12 - Prob. 7IRPCh. 12 - Prob. 8IRPCh. 12 - Prob. 9IRPCh. 12 - Prob. 10IRPCh. 12 - Prob. 2TPCCh. 12 - Prob. 3TPC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $264,500 for the current year. Because of the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus. Assume that the tax rates are 24% for Kristen and 21% for Egret Corporation. Round your answers to nearest dollar, if required. a. How much better off would Kristen be if she were paid a dividend rather than salary? If Kristen were paid a bonus, she would receive s 201,020✔ after taxes. If Kristen receives a dividend rather than salary, she would receive 224,825✔ after taxes. Thus, she would be better off by receiving the dividend Feedback Check My Work b. How much better off would Egret Corporation be if it paid Kristen a salary rather than a dividend? The net after-tax cost of the bonus for Egret Corporation would be s 7,975 X Therefore, Egret would be better off by s be s Check My Work 208,955✔ and the net after-tax cost for the dividend would…arrow_forwardKristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $30,000 for the current year. Because of the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus. Assume that the tax rates are 24% for Kristen and 21% for Egret Corporation. Question Content Area a. How much better off would Kristen be if she were paid a dividend rather than salary? If Kristen were paid a bonus, she would receive $fill in the blank bcbd0cf5affa04c_1 22,800 after taxes. If Kristen receives a dividend rather than salary, she would receive $fill in the blank bcbd0cf5affa04c_2 25,500 after taxes. Thus, she would be better off by receiving the dividend . Feedback Area Feedback Closely held corporations have considerable discretion regarding their dividend policies. In the past, the double tax result provided strong motivation to avoid the payment of dividends. Instead, the incentive was to bail out corporate profits in a…arrow_forwardLily is the sole shareholder of Crimson Corporation (a C corporation). At a time when Crimson has a deficit in accumulated E & P of $90,000 and current E & Pof $65,000, it distributes a cash dividend of $85,000. If Lily's basis in her stock is $15,000, what are the tax consequences of the distribution to Lily and Crimson? a. How is the $85,000 cash dividend taxed to Lily? Dividend Income Return of Capital Capital Gainarrow_forward
- Tall Corporation (an S-corporation) has AAA of $16,000 and AEP of $8,000 .Tall Corp. distributes $20,000 of cash to its Henry, the sole shareholder. Henry's basis in his S Corp stock before the distribution is $40,000. Henry is in the 37% tax bracket. 1. What are the tax consequences to Henry as a result of this distribution? 2. What is ending balance in AAA and AEP. What is Henry's ending stock basis?arrow_forwardCarrie, the president and sole shareholder of Energy Corporation, has earned a bonus of $100,000 for the current year. Because of the lower tax rates on qualifying dividends, Carrie is considering substituting a dividend for the bonus. Assume that the tax rates are 25% for Carrie and 21% for Energy Corporation. a. How much better off would Carrie be if she were paid a dividend rather than salary? b. How much better off would Energy Corporation be if it paid Carrie a salary rather than a dividend?arrow_forwardLily is the sole shareholder of Crimson Corporation (a C corporation). At a time when Crimson has a deficit in accumulated E & P of $90,000 and current E & Pof $65,000, it distributes a cash dividend of $85,000. If Lily's basis in her stock is $15,000, what are the tax consequences of the distribution to Lily and Crimson? a. How is the $85,000 cash dividend taxed to Lily? Dividend Income Return of Capital Capital Gain b. What are the tax consequences of the distribution to Crimson Corporation? After the distribution Crimson Corporation's current E & Pis $___ and its accumulated E & Pis $_ -- deficitarrow_forward
- For the following independent cases, determine whether economic income is present and, if so, whether it must be included in gross income (i.e., is it realized and recognized for tax purposes?) Asia owns stock that is listed on the New York Stock Exchange, and this year the stock increased in value by 20,000. Ben sold stock for $10,000 and paid a sales commission of $250. Ben purchased the stock several years ago for $4,000. Bessie is partner in SULU Enterprises LLC. This year SULU reported that Bessie’s share of rental income was $2,700 and her share of municipal interest was $750.arrow_forwardMr. Young operates a photography studio as a sole proprietorship. His average annual income from the business is $100,000. Because Mr. Young does not need the entire cash flow for personal consumption, he is considering incorporating the business. He will work as a corporate employee for a $40,000 annual salary, and the corporation will accumulate its after-tax income to fund future business expansion. For purposes of this case, assume that Mr. Young's marginal income tax rate is 32 percent and ignore any employment tax consequences. a. Assuming Mr. Young's sole proprietorship does not qualify for the QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? b. Assuming Mr. Young's sole proprietorship qualifies for the 20% QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? Complete this question by entering your answers in the tabs below. Required A Required B Assuming Mr. Young's sole…arrow_forwardMr. Young operates a photography studio as a sole proprietorship. His average annual income from the business is $100,000. Because Mr. Young does not need the entire cash flow for personal consumption, he is considering incorporating the business. He will work as a corporate employee for a $40,000 annual salary, and the corporation will accumulate its after-tax income to fund future business expansion. For purposes of this case, assume that Mr. Young’s marginal income tax rate is 32 percent and ignore any employment tax consequences. Required: Assuming Mr. Young's sole proprietorship does not qualify for the QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? Assuming Mr. Young's sole proprietorship qualifies for the 20% QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? Mr. Young's tax burden decrease or increase by ( ) NOTE: 25,400 is NOT the right answer.arrow_forward
- For the following independent cases, determine whether economic income is present and, if so, whether it must be included in gross income (i.e., is it realized and recognized for tax purposes?). Note: Leave no answers blank. Enter zero if applicable. Required: Asia owns stock that is listed on the New York Stock Exchange, and this year the stock increased in value by $15,250. Ben sold stock for $10,500 and paid a sales commission of $210. Ben purchased the stock several years ago for $4,200. Bessie is a partner in SULU Enterprises LLC. This year SULU reported that Bessie's share of rental income was $2,850 and her share of municipal interest was $800.arrow_forwardLynette is the CEO of a publicly traded company TT company and earns a salary of $380,000 in the current year. What is TTT Corporation's after-tax cost of paying Lynette's salary excluding FICA taxes?arrow_forwardSusan owns all the debt and equity that is issued by Pinder Ltd. Pinder Ltd has an EBIT of $450,267. Of that EBIT, Pinder Ltd pays interest expenses of $220,693 and distributes all net income as dividends. The corporate tax rate is 35%, and Susan’s personal income tax rate is 44%, applicable to both dividend and interest income. Susan currently lives under the classical tax system. Based only on the information above, how much more after-tax income would Susan have earned from interest and dividends under an imputation tax system? (round to the nearest two decimal places) $45,996.91 $44,496.03 $44,996.50 $45,496.84 None of the other answers.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Understanding U.S. Taxes; Author: Bechtel International Center/Stanford University;https://www.youtube.com/watch?v=QFrw0y08Oto;License: Standard Youtube License