Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto Incorporated, which manufactures greeting cards. Toto's average annual net profit (before deduction of Mr. Lion's salary) is $310,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.)
Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto Incorporated, which manufactures greeting cards. Toto's average annual net profit (before deduction of Mr. Lion's salary) is $310,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.)
Chapter19: Corporations: Distributions Not In Complete Liquidation
Section: Chapter Questions
Problem 49P
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Transcribed Image Text:Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto Incorporated, which
manufactures greeting cards. Toto's average annual net profit (before deduction of Mr. Lion's salary) is
$310,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any
payroll tax consequences.)
Required:
a. Mr. Lion's salary is $100,000, and Toto pays no dividends.
b. Mr. Lion's salary is $100,000, and Toto distributes its after-tax income as a dividend.
c. Toto is an S corporation. Mr. Lion's salary is $100,000, and Toto makes no cash distributions. Assume
Toto's ordinary income qualifies for the 20 percent QBI deduction.
d. Toto is an S corporation. Mr. Lion draws no salary, and Toto makes no cash distributions. Assume Toto's
ordinary income qualifies for the 20 percent QBI deduction.
e. Toto is an S corporation. Mr. Lion draws no salary, and Toto makes cash distributions of all its income to
Mr. Lion. Assume Toto's ordinary income qualifies for the 20 percent QBI deduction.
a. Income tax burden on this profit
b. Income tax burden on this profit
c. Income tax burden on this profit
d. Income tax burden on this profit
e. Income tax burden on this profit
Amount
$
81,100
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