Megan operates a housecleaning business as a sole proprietorship. She oversees a team of 10 cleaning personnel, markets usiness, and provides supplies and equipment. The business has been generating net taxable profits of $50,000 per year, efore considering the QBI deduction. As a sole proprietor, Megan qualifies for the 20 percent deduction, reducing taxable come from the business to $40,000. Required: . Assume that Megan's marginal tax rate on ordinary income is 35 percent and that she has no pressing need for cash flow from this business. Should Megan consider incorporating and operating the business through a C corporation? Fill the bel table to justify your answers. (Ignore any payroll or self-employment tax considerations.) Answer is complete but not entirely correct. Income tax liability if operated as a C corporation Income tax savings Should Megan consider incorporating and operating the business through a C corporation? . How would your conclusion in part (a) change if Megan's marginal tax rate were only 28 percent? X Answer is complete but not entirely correct. decrease ✓to $ 10,500X Annual tax savings will $50,000 X $ 10,500 per year Yes
Megan operates a housecleaning business as a sole proprietorship. She oversees a team of 10 cleaning personnel, markets usiness, and provides supplies and equipment. The business has been generating net taxable profits of $50,000 per year, efore considering the QBI deduction. As a sole proprietor, Megan qualifies for the 20 percent deduction, reducing taxable come from the business to $40,000. Required: . Assume that Megan's marginal tax rate on ordinary income is 35 percent and that she has no pressing need for cash flow from this business. Should Megan consider incorporating and operating the business through a C corporation? Fill the bel table to justify your answers. (Ignore any payroll or self-employment tax considerations.) Answer is complete but not entirely correct. Income tax liability if operated as a C corporation Income tax savings Should Megan consider incorporating and operating the business through a C corporation? . How would your conclusion in part (a) change if Megan's marginal tax rate were only 28 percent? X Answer is complete but not entirely correct. decrease ✓to $ 10,500X Annual tax savings will $50,000 X $ 10,500 per year Yes
Chapter13: Choice Of Business Entity—general Tax And Nontax Factors/formation
Section: Chapter Questions
Problem 47P
Related questions
Question
Transcribed Image Text:Megan operates a housecleaning business as a sole proprietorship. She oversees a team of 10 cleaning personnel, markets the
business, and provides supplies and equipment. The business has been generating net taxable profits of $50,000 per year,
before considering the QBI deduction. As a sole proprietor, Megan qualifies for the 20 percent deduction, reducing taxable
income from the business to $40,000.
Required:
a. Assume that Megan's marginal tax rate on ordinary income is 35 percent and that she has no pressing need for cash flow
from this business. Should Megan consider incorporating and operating the business through a C corporation? Fill the below
table to justify your answers. (Ignore any payroll or self-employment tax considerations.)
Income tax liability if operated as a C corporation
Income tax savings
Should Megan consider incorporating and operating the business through a C corporation?
X Answer is complete but not entirely correct.
b. How would your conclusion in part (a) change if Megan's marginal tax rate were only 28 percent?
X Answer is complete but not entirely correct.
to $ 10,500 X
Annual tax savings will
decrease
$50,000 X
$ 10,500 per year
Yes
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