Boots, Inc. is a “C” corporation engaged in the show manufacturing business. Boots is a Calendar year, accrual method taxpayer with two equal shareholders, Emil and Betty, who are unrelated cash method taxpayers. In answering the questions below, assume for convenience that Emil and Betty each are taxable at a combined federal and state flat rate of 40% on ordinary income and combined flat rate of 20% on qualified dividends and long-term capital gains. During the current year, Boots has the following income and expense items. Income Gross profit-Sales of inventory-------$2,600,000 Capital Gains------------------------------$200,000 Expense and Losses: Operating Expense----------------------$800,000 Equipment Purchase (100% Expensed) ---$800,000 Capital Loses-------------------------------$220,000 Determine Boots, Inc.’s Taxable income and its tax liability for the current year. What result in (a), above, if Boots distribute its after-tax profits to Emily and Betty as qualified dividends? What result in (a) above, if instead of paying dividends Boots pay Emil and Betty salaries of $500,000 each? Has the effectiveness of this traditional strategy to reduce the impact of the double tax on corporation earning changed as a result of 2017 Act?
Boots, Inc. is a “C” corporation engaged in the show manufacturing business. Boots is a Calendar year, accrual method taxpayer with two equal shareholders, Emil and Betty, who are unrelated cash method taxpayers. In answering the questions below, assume for convenience that Emil and Betty each are taxable at a combined federal and state flat rate of 40% on ordinary income and combined flat rate of 20% on qualified dividends and long-term capital gains. During the current year, Boots has the following income and expense items. Income Gross profit-Sales of inventory-------$2,600,000 Capital Gains------------------------------$200,000 Expense and Losses: Operating Expense----------------------$800,000 Equipment Purchase (100% Expensed) ---$800,000 Capital Loses-------------------------------$220,000 Determine Boots, Inc.’s Taxable income and its tax liability for the current year. What result in (a), above, if Boots distribute its after-tax profits to Emily and Betty as qualified dividends? What result in (a) above, if instead of paying dividends Boots pay Emil and Betty salaries of $500,000 each? Has the effectiveness of this traditional strategy to reduce the impact of the double tax on corporation earning changed as a result of 2017 Act?
Chapter13: Comparative Forms Of Doing Business
Section: Chapter Questions
Problem 40P
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Boots, Inc. is a “C” corporation engaged in the show manufacturing business. Boots is a Calendar year, accrual method taxpayer with two equal shareholders, Emil and Betty, who are unrelated cash method taxpayers. In answering the questions below, assume for convenience that Emil and Betty each are taxable at a combined federal and state flat rate of 40% on ordinary income and combined flat rate of 20% on qualified dividends and long-term
Income
- Gross profit-Sales of inventory-------$2,600,000
- Capital Gains------------------------------$200,000
Expense and Losses:
- Operating Expense----------------------$800,000
- Equipment Purchase (100% Expensed) ---$800,000
- Capital Loses-------------------------------$220,000
- Determine Boots, Inc.’s Taxable income and its tax liability for the current year.
- What result in (a), above, if Boots distribute its after-tax profits to Emily and Betty as qualified dividends?
- What result in (a) above, if instead of paying dividends Boots pay Emil and Betty salaries of $500,000 each? Has the effectiveness of this traditional strategy to reduce the impact of the double tax on corporation earning changed as a result of 2017 Act?
- Consider generally whether there is any advantage to operating Boots as a pass-through entity, such as a
partnership , limited liability company, or S Corporation and, if so, whether Emil and Betty will qualify for the new 20% deduction for qualified business income. What additional facts are necessary to evaluate this options?
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