chapter 3. rich corporation case. howard godfrey, ph.d., cpa professor of accounting ©howard...

Chapter 3.Rich Corporation

Case. Howard Godfrey, Ph.D., CPA

Professor of Accounting ©Howard Godfrey-2015

Common Tax Planning Techniques1. Defer income to a future year. Delay tax payment (time value of money). (Lower tax rate in future year?] [First Connect H/W problem and second one.]2. Move income to another entity. Incorporate business.

Have current income taxed at corporate level, rather than at the individual level. [Third Connect H/W problem.]3. Transfer income to relative in a lower bracket.

(a) Give rental property or other investments to a relative who is in a lower tax bracket.

(b)Give appreciated property to a child (in lower bracket). Child sells property and reports the gain.

Common Tax Planning Techniques4. Replace ordinary income with long-term capital gains. Hold property longer than one year before selling. (Long-term capital gain rates.)5. Invest in a dividend-paying stock instead of investing in a corporate bond. (Dividends are taxed at the preferential rates applicable to long-term capital gains.)6. Invest in a municipal bond rather corp. bond (Municipal bond interest income is not subject to federal income tax, and is often not subject to state income tax.)[Fourth Connect H/W problem.]

Common Tax Planning Techniques7. Shift income to another jurisdiction, such as a “low-tax” state, or a “low-tax” country. Coca-Cola is moving from Atlanta (U.S. top corp. rate: 35%) to the United Kingdom (top corporate rate: 20%).8. Manage losses (capital losses & net operating losses). Avoid allowing losses to disappear before taking advantage of them.Play the “tax rates game.” Get the lowest tax rate. End goal is to maximize after-tax income, even if that means investing in a more profitable investment that also has a higher tax burden.

In summary,We try to reduce the tax rate or reduce the tax base. Buy a $500 computer on sale for $400, you save $100. You also reduce the tax base for the sales tax computation. You save sales tax of $8.00, if the sales tax rate is 8%.We may also reduce the tax rate. The State often has a sales tax holiday in August, for those buying back to school supplies. The tax rate goes to zero. You pay no sales tax.So, here you reduce the tax rate.Save taxes by reducing the tax base or the rate.

You need money to buy a house. You are in a low tax bracket. Your “top tax bracket” grandparents have land (held LT). They will sell it and give you the after-tax proceeds. Selling price (value) $300,000 Cost basis (to compute gain) $200,000 Profit $100,000Their tax base for computing their income tax is $100,000They pay 20% of $100,000 or $20,000.You receive $280,000.

Continue. They give you the property and you sell it. Selling price (value) $300,000 Cost basis (same as their basis) $200,000 Profit $100,000Your tax base for computing the income tax is $100,000You pay 15% of $100,000 or $15,000.You keep $285,000.That is better than getting $280,000

Continue. You inherit the property and you sell it. Selling price (value) $300,000 Cost basis (FMV at date of death) $300,000 Profit $0 Your base for computing income tax is $0You pay 15% of $0 or $0.You keep $300,000.There is a higher “tax basis for computing gain,” and a lower basis for computing tax.

1. Mr. Rich invested $120,000 in Rich Corp. 2. Bought equipment for $30,000.3. Collected revenue of $400,000.4. Paid salaries of $200,000.5. Paid payroll taxes of $15,3006. Paid other expenses of $74,700. 7. Recorded depreciation on equipment,

S/L method, 3-year useful life, zero estimated salvage value.

8. Recorded federal corporate income tax liability. There is no state income tax.

Service Revenue $400,000

Salary Expense $200,000

Payroll tax 15,300

Depreciation Exp. (S/L, 3yrs) 10,000

Other Expense 74,700

Total Expenses (300,000)

Net Income before tax $100,000

Federal Income Tax ($22,250)

Deferred income tax expense

Net Income (after tax) $77,750

Income Statement for 2015

Compute Income Tax on Next Slide

From To Rate Amount Tax

$0 $50,000 15% $50,000 $7,500

50,000 75,000 25% 25,000 6,250

75,000 100,000 34% 25,000 8,500

100,000 335,000 39% 0 0

335,000 10,000,000 34% 0 0

10,000,000 15,000,000 35% 0 0

15,000,000 18,333,333 38% 0 0

18,333,333 35% 0 0

Taxable income (GAAP Net Income) 100,000

Federal Income Tax $22,250

Federal Corporate Income Tax Rates

Retained Earnings - Beginning Balance $0

Add: Net Income 77,750

Less: Dividends

Retained Earnings- Ending Balance $77,750

Cash 200,000

Machinery $30,000

Accumulated Deprec. (10,000) 20,000

Total Assets $220,000

Income Tax Payable $22,250

Deferred income tax liability

Common Stock $120,000

Retained Earnings 77,750

Total Stockholder Equity 197,750

Total Liabilities & Equity $220,000

Balance Sheet- December 31, 2015

Retained Earnings Statement

Income Tax Expense 22,250

Income Tax Payable 22,250

Entry assumes tax depreciation is $10,000.

Journal Entry: Income Tax Expense

No Account Debit Credit

1 Cash 120,000Common Stock 120,000Investment of cash by owner.

2 Equipment 30,000Cash 30,000Purchase equipment for cash.

3 Cash 400,000Service Revenue 400,000Collection of revenue for repairs.

4 Salary Expense 200,000Cash 200,000

Paid salaries to four employees ($50,000 each).

No Account Debit Credit

5 Payroll tax expense 15,300Cash 15,300Paid FICA Tax at rate of 7.65%.

(employer matching amount)

6 Other Expenses 74,700Cash 74,700Paid other expenses.

7 Depreciation Expense 10,000Accumulated Depreciation 10,000Depreciation. Straight-line method. 3 year life.

8 Income Tax Expense 22,250

Income Tax Payable 22,250Journal entry assumes tax depreciation is $10,000.Depreciation expense on tax return may be another amount.

Credits to accounts Accumulated Common Retained

are shown as (xx ) Cash Equipment Depreciation Stock Earnings

1 Invest in Company 120,000 (120,000)

2 Buy Equipment (30,000) 30,000

3 Revenue 400,000

4 Salary Expense (200,000)

5 Payroll Tax Expense (15,300)

6 Other Expense (74,700)

7 Deprec. Expense (10,000)

8 Income Tax Expense

200,000 30,000 (10,000) (120,000) 0

Close Rev. & Exp. (77,750)

Post-Closing 200,000 30,000 (10,000) (120,000) (77,750)

Credits to accounts Accumulated Common Retained Service Salary Payroll Other Depreciation Income

are shown as ( ) Cash Equipment Depreciation Stock Earnings Revenue Expense Tax Expense Expense Tax Expense

1 Invest in Company 120,000 (120,000)

2 Buy Equipment (30,000) 30,000

3 Revenue 400,000 (400,000)

4 Salary Expense (200,000) 200,000

5 Payroll Tax Expense (15,300) 15,300

6 Other Expense (74,700) 74,700

7 Deprec. Expense (10,000) 10,000

8 Income Tax Expense 22,250

200,000 30,000 (10,000) (120,000) 0 (400,000) 200,000 15,300 74,700 10,000 22,250

Close Rev. & Exp. (77,750) 400,000 (200,000) (15,300) (74,700) (10,000) (22,250)

Post-Closing 200,000 30,000 (10,000) (120,000) (77,750) 0 0 0 0 0 0

2015

1a 1a 400,000 b 1b c 1c 400,000 2 Cost of Goods Sold………..……………………..………………………………………………………2 03 Gross Profit………..……………………..…………………………………………………………..3 400,000 4 Dividends………..……………………..…………………………………………………………….45 Interest………..……….………………..……………………………………………………………56 Gross Rents…...……..……………………..………………………………………………………67 Gross royalties………..……………………..………………………………………………………78 Capital gain net income………..……………………..………………………………………………………89 Net gain or (loss) from Form 4797, Part II, Line 17………..……………………..………………………………………………………910 Other Income………..……………………..………………………………………………………..1011 Total Income………..……………………..………………………………………………………11 400,000 12 Compensation of officers………..……………………..………………………………………………………1213 Salaries and Wages………..……………………..………………………………………………………13 200,000 14 Repairs and Maintenance………..……………………..………………………………………………………1415 Bad debts………..……………………..………………………………………………………1516 Rents…………….......……………………..………………………………………………………1617 Taxes and licenses………..……………………..………………………………………………………17 15,300 18 Interest…………...……...………………..………………………………………………………1819 Charitable contributions………..……………………..………………………………………………………1920 Depreciation from Form 4582, not claimed on Form 1125A or elsewhere……………………..………………………………………………………20 10,000 21 Depletion…….……..……………………..………………………………………………………2122 Advertising………..……………………..………………………………………………………2223 Pension, profit-sharing, etc………..……………………..………………………………………………………2324 Employee benefit plans………..……………………..………………………………………………………2425 Domestic production activities deduction (attach Form 8903) ………...……………….. 2526 Other Deductions………..……………………..………………………………………………………26 74,700 27 Total Deductions………..……………………..………………………………………………………27 300,000 28 Taxable income before net operating loss and special deductions………..……………………..………………………………………………………28 100,000 29 Less: a. Net operating loss………..……………………..………………………………………………………29a

b. Special deductions………..……………………..………………………………………………………29b 29c

30 Taxable income - Subtract line 29c from line 28 (see instructions)………...…… 30 100,000

31 Total Tax………..………..………………..………………………………………………………31 22,250 32 Total Payments and refundable credits………..………..………………..………………………………………………………32 33 Estimated tax penalty-Check is Form, 2220 is attached………………………………..…. 3334 Amount owed . If line 32 is smaller than the total of lines 31 and 33, enter amount overpaid………..……………………..………………………………………………………34 22,250 35 Overpayment . If line 32 is larger than the total of lines 31 and 33, enter amount overpaid………..……………………..………………………………………………………35

36 Enter amt of line 35 you want credited to 2016 estimated tax Credited--> Refunded --> 36Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements,

and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer)

is based on all information of which preparer has any knowledge.

Signature of officer Date Title

Print/Type Preparer's Name Preparer's signature Date Check if PTIN

self-empl.

Firm's Name Firm's EIN

Firm's Address Phone No.

1120 U.S. Corporation Income Tax Return

Inco

me

Gross Receipts………………………………………………………….Returns and allowances………………………………………………………….Balance. Subtract line 1b from line 1a……………………………………………………………….

Ded

uct

ion

sT

ax P

aym

ents

Sign Here

May IRS discuss this return with the Preparer shown below? _ Yes, _No.

Paid Preparer use

only

2015

1a 1a 400,000 b 1b c 1c 400,000 2 Cost of Goods Sold………..……………………..………………………………………………………2 03 Gross Profit………..……………………..…………………………………………………………..3 400,000 4 Dividends………..……………………..…………………………………………………………….45 Interest………..……….………………..……………………………………………………………56 Gross Rents…...……..……………………..………………………………………………………67 Gross royalties………..……………………..………………………………………………………78 Capital gain net income………..……………………..………………………………………………………89 Net gain or (loss) from Form 4797, Part II, Line 17………..……………………..………………………………………………………9

10 Other Income………..……………………..………………………………………………………..1011 Total Income………..……………………..………………………………………………………11 400,000

1120 U.S. Corporation Income Tax Return

Inco

me

Gross Receipts………………………………………………………….Returns and allowances………………………………………………………….Balance. Subtract line 1b from line 1a……………………………………………………………….

12 Compensation of officers………..……………………..………………………………………………………12 100,000 13 Salaries and Wages………..……………………..………………………………………………………13 100,000 14 Repairs and Maintenance………..……………………..………………………………………………………14

15 Bad debts………..……………………..………………………………………………………15

16 Rents…………….......……………………..………………………………………………………16

17 Taxes and licenses………..……………………..………………………………………………………17 15,300 18 Interest…………...……...………………..………………………………………………………18

19 Charitable contributions………..……………………..………………………………………………………19

20 Depreciation-Form 4582, not claimed on Form 1125A……..………………………………………………………20 10,000 21 Depletion…….……..……………………..………………………………………………………21

22 Advertising………..……………………..………………………………………………………22

23 Pension, profit-sharing, etc………..……………………..………………………………………………………23

24 Employee benefit plans………..……………………..………………………………………………………24

25 Domestic production activities deduction (attach Form 8903) ………...………………..25

26 Other Deductions………..……………………..………………………………………………………26 74,700 27 Total Deductions………..……………………..………………………………………………………27 300,000 28 Taxable income before net operating loss & special deductions………..……………………..………………………………………………………28 100,000 29 Less: a. Net operating loss………..……………………..………………………………………………………29a

b. Special deductions………..……………………..………………………………………………………29b 29c

30 Taxable income - Subtract line 29c from line 28………...……30 100,000

Ded

uct

ion

s

Form 1120 (2015) Page 5

Schedule L Balance Sheets per Books

(c) (d) 1 Cash ……...……..............................................................……. 200,000 2a Trade notes and accounts receivable …...……............... 2b Less allowance for bad debts .………..........................…… 3 Inventories...........……..……….......................................…………. 4 U.S. govemment obligations.……….................................... 5 Tax-exempt securities (see instructions) .…….................... 6 Other current assets (attach schedule) (Savings)….................... 7 Loans to stockholders....……...................................……… 8 Mortgage and real estate loans.....……....................…….. 9 Other investments (attach schedule).……........................... 10a Buildings and other depreciable assets.……........................ 30,000 10b Less accumulated depreciation..........……......................... (10,000) 20,000 11a Depletable Assets…………………………...………………. 11b Less accumulated depletion..……...................................... 12 Land (net of any amortization) ....……................................ 13a Intangible assets (amortizable only)……............................ 13b Less accumulated amortization.....…….............................. 14 Other assets (attach schedule) .......……............................ 15 Total Assets………………...………………………………… 220,000

Assets

Liabilities and Stockholders' Equity 16 Accounts payable.............................................. 17 Mortgages, notes, bonds payable in less than 1 year…........................ 18 Other current liabilities (attach schedule) ........................... 22,250 19 Loans from stockholders...........……........................... 20 Mortgages, notes, bonds payable in 1 year or more……...……………… 21 Other liabilities (attach schedule)………...……. 22 Capital stock: a Preferred stock.........……...........………….

b Common stock.....……......................120,000 23 Additional paid-in capital……..…………...…................................ 120,000 24 Adjustments to stockholders equity……..…………...…................................ 25 Retained eamings-Appropriated…………….………….......... 26 Retained eamings-Unappropriated …….......................…………. 77,750 27 Less cost of treasury stock......……...........................……….. 28 Total liabilities and stockholders' equity …………..…. 220,000

Schedule M-1 Reconciliation of Income (Loss) per Books with Income per Return

1 Net income (loss) per books......………......................77,750 7 Income recorded on books this year

2 Federal income tax............................................. 22,250 not included on this return (itemize):

3 Excess of capital losses over capital gains ……............ Tax-exempt interest. $

4 Income subject to tax not recorded on books………..........

this year (itemize):………...………….……………………………… 8 Deductions on this return not charged

against book income this year (itemize):

5 Expenses recorded on books this year not a. Depreciation .....

deducted on this retum (itemize): b. Contributions carryover

a Depreciation .………................

b Contributions …………...…....

c Travel and entertainment…....

9 Add lines 7 and 8 0

6 Add lines 1 throuqh 5 100,000 10 Income (Line 28, page 1) - line 6 less line 9 100,000

Schedule M-2 Analysis of Unappropriated Retained Earnings (Line 25, Schedule L)

1 Balance at beginning of year...................................0 5 Distributions: a Cash........................................0

2 Net income (loss) per books...................................77,750 b Stock .......................................

3 Other increases (itemize): c Property..................................

6 Other decreases (itemize):

7 Add lines 5 and 6..........................................0

4 Add lines 1, 2, and 3..........................................77,750 8 Balance at end of year (line 4 less line 7) 77,750

Note in the following slide that we assume: 1. Use GAAP depreciation expense on the tax return. 2.Operations continue at the same level in 2016 and 2016.3. Law does no change after 2015.Please review the next slide

Case 1- Analysis 2015 2016 2017

Revenue $400,000 $400,000 $400,000

Salary Expense 200,000 200,000 200,000

Payroll tax 15,300 15,300 15,300

Other Expense 74,700 74,700 74,700

Depreciation - Cost $30,000/3-yr life 10,000 10,000 10,000

Total expenses in GAAP statements 300,000 300,000 300,000

GAAP Net Income Before Tax 100,000 100,000 100,000

Tax [if GAAP income =Taxable income] 22,250 22,250 22,250

Net income (after tax) $77,750 $77,750 $77,750

Now, we can consider the impact of choosing to expense the entire cost of the equipment in 2015.That will help us in 2015, because the extra depreciation of $20,000 will reduce taxable income and reduce the amount of taxes payable for 2015. But our equipment will be fully depreciated for tax purposes. No depreciation can be claimed in 2016 and 2017

Remember, we continue to use straight-line depreciation in our audited financial statements.It is the tax return that has accelerated depreciation.

Case 1- Analysis 2015 2016 20171 Revenue $400,000 $400,000 $400,0002 Salary Expense 200,000 200,000 200,0003 Payroll tax 15,300 15,300 15,3004 Other Expense 74,700 74,700 74,7005 Depreciation - Cost $30,000/3-yr life 10,000 10,000 10,0006 Total expenses in GAAP statements 300,000 300,000 300,0007 GAAP Net Income Before Tax 100,000 100,000 100,0008 Tax [if GAAP income =Taxable income] 22,250 22,250 22,2509 Net income (after tax) $77,750 $77,750 $77,750

10 Case 2 - Claim more Tax Depreciation11 "Tax Return" Depreciation is $30,00012 GAAP Net Income Before Tax (above) 100,000 100,000 100,00013 Adjustment to get Taxable Income (20,000)14 Adjustment to get Taxable Income 10,000 10,00015 Taxable Income (Case 2) 80,000 110,000 110,00016 Federal Income Tax on Tax Return 15,450 26,150 26,150

Case 2. Tax Deprec. in 2015 is $30,000. Please prepare revised journal entries below? Current Income Tax Expense

Current Income Tax Expense

Cash

Deferred Income Tax Expense


Deferred Income Tax Liability

Total

Identify statement amounts that would change if the journal entries above were made. (not the entries in tab 1)

Print correct amounts on the financial statements.

Case 2. Tax Deprec. in 2015 is $30,000. Do you agree with the revised journal entries below? Current Income Tax Expense

Current Income Tax Expense 15,450

Cash 15,450


Deferred Income Tax Expense 7,800

Deferred Income Tax Liability 7,800

Total 23,250

Identify statement amounts that would change if the journal entries above were made. (not the entries in tab 1)

Print correct amounts on the financial statements.

Compare with earlier journal entry

Income Tax Expense 22,250

Income Tax Payable 22,250

Entry assumes tax depreciation is $10,000.

Journal Entry: Income Tax Expense

Service Revenue $400,000

Salary Expense $200,000 Payroll tax 15,300 Depreciation Expense (S/L) 10,000 Other Expense 74,700

Total Expenses (300,000)Net Income before tax $100,000

Federal Income Tax ($22,250)Deferred income tax expense


Retained Earnings - Beginning Balance $0Add: Net Income 77,750Less: Dividends

Retained Earnings Ending Balance $77,750


Income Statement for 2015What balances below change in Case 2?

Service Revenue $400,000 Salary Expense $200,000 Payroll tax 15,300 Depreciation Expense (S/L) 10,000 Other Expense 74,700

Total Expenses 300,000Net Income before tax $100,000

Federal Income Tax ($15,450)

Deferred income tax expense ($7,800)


Retained Earnings - Beginning Balance $0Add: Net Income $76,750Less: Dividends

Retained Earnings Ending Balance $76,750


Income Statement for 2015

What accounts change from Case 1 to Case 2?

Cash 200,000Machinery $30,000

Accumulated Depreciation (10,000) 20,000



Deferred income tax liability


Retained Earnings 77,750




What accounts change from Case 1 to Case 2?

Cash 200,000Machinery $30,000

Accumulated Depreciation (10,000) 20,000



Deferred income tax liability $7,800


Retained Earnings $76,750




5 Depreciation - Cost $30,000/3-yr life 10,000 10,000 10,000

6 Total expenses in GAAP statements 300,000 300,000 300,0007 GAAP Net Income Before Tax 100,000 100,000 100,0008 Tax [if GAAP income =Taxable income] 22,250 22,250 22,250

9 Net income (after tax) $77,750 $77,750 $77,750

10 Case 2 - Claim more Tax Depreciation

11 "Tax Return" Depreciation is $30,000

12 GAAP Net Income Before Tax (above) 100,000 100,000 100,000

13 Adjustment to get Taxable Income (20,000)

14 10,000 10,000

15 Taxable Income (Case 2) 80,000 110,000 110,000

16 Federal Income Tax on Tax Return 15,450 26,150 26,150

Note what happens to tax rates when you push income into the future years?

5 Depreciation - Cost $30,000/3-yr life 10,000 10,000 10,000

6 Total expenses in GAAP statements 300,000 300,000 300,000

7 GAAP Net Income Before Tax 100,000 100,000 100,000 300,000

8 Tax [if GAAP income =Taxable income] 22,250 22,250 22,250 66,750

9 Net income (after tax) $77,750 $77,750 $77,750 233,250

10 Case 2 - Claim more Tax Depreciation

11 "Tax Return" Depreciation is $30,000

12 GAAP Net Income Before Tax (above) 100,000 100,000 100,000

13 Adjustment to get Taxable Income (20,000) More Deprec. Expense- 2015

14 Adjustment to get Taxable Income 10,000 10,000 Remove Deprec. (2016, 2017).

15 Taxable Income (Case 2) 80,000 110,000 110,000 300,000

16 Federal Income Tax on Tax Return 15,450 26,150 26,150 67,750

Note in the preceding slide that moving taxable income from 2015 to later years, results in a change in the marginal tax rate from 34% (for savings) to 39% (more future taxes).

From To Rate Amount Tax

$0 $50,000 15% $50,000 $7,500

50,000 75,000 25% 25,000 6,250

75,000 100,000 34% 25,000 8,500

100,000 335,000 39% 10,000 3,900

Taxable income $110,000

Federal Income Tax $26,150

Federal Corporate Income Tax

In next slides, we see how taxable income at corporate level – - that is subject to income tax – is changed, as we shift income to the individual return where the individual pays tax on the additional income.With S corporation, Corp. pays no tax and owner pays tax on all of the income.

Rich BasicCorporation CaseCorporate Revenue 400,000

Mr. Rich (100% owner) (100,000)Other corporate expenses (200,000)

Dividend paid N/ABonus to ower

Corporate Federal Taxable income 100,000Corporate Federal Income Tax 22,250

$10,000

Rich Basic Pay Dividend

Corporation Case of $10,000Corporate Revenue 400,000 400,000

Mr. Rich (100% owner) (100,000) (100,000)Other corporate expenses (200,000) (200,000)

Dividend paid No Deduction

Bonus to owerCorporate Taxable income 100,000 100,000

Corporate Income Tax 22,250 22,250

$10,000

Rich Basic Dividend Bonus

Corporation Case of $10,000 $10,000

Corporate Revenue 400,000 400,000 400,000

Mr. Rich (100% owner) (100,000) (100,000) (100,000)

Other corporate expenses (200,000) (200,000) (200,000)

Dividend paid

Bonus to ower (10,000)

Corporate Taxable income 100,000 100,000 90,000

Corporate Income Tax 22,250 22,250 18,850

Rich Basic Dividend Bonus ElectCorporation Case of $10,000 $10,000 S Status

Revenue 400,000 400,000 400,000 400,000

Rich - salary (100,000) (100,000) (100,000) (100,000)

Other expenses (200,000) (200,000) (200,000) (200,000)N/A

Bonus to ower (10,000)

Taxable income 100,000 100,000 90,000 100,000Corp. Income Tax 22,250 22,250 18,850 0

Dividend paid

Rich's Federal Individual Info.Rich (single, 1 exemption) $4,000Home mortgage interest $9,000Property tax on home $7,000Gift to UNC Charlotte $10,000

$30,000

Rich's Individual Tax Basic Case Dividend Bonus S. Corp.Salary $100,000 $100,000 $100,000 $100,000Exemption, item. deductions ($30,000) ($30,000) ($30,000) ($30,000)Taxable income - Before options $70,000 $70,000 $70,000 $70,000

Add: Dividend income $10,000Add: Bonus to owner $10,000Add: Flow-through-S Corp. $100,000

Individual Taxable Income $70,000 $80,000 $80,000 $170,000

Amount of regular income $70,000 $70,000 $80,000 $170,000

Amount of dividend income $10,000

Tax on regular income $13,294 $13,294 $15,794 $40,671

Tax on div. [at 15% tax rate] $1,500

Total individual Income Tax $13,294 $14,794 $15,794 $40,671

Rich's Individual Tax Basic Case Dividend Bonus S. Corp.Salary $100,000 $100,000 $100,000 $100,000Exemption, item. deductions ($30,000) ($30,000) ($30,000) ($30,000)Taxable income - Before options $70,000 $70,000 $70,000 $70,000

Add: Dividend income $10,000Add: Bonus to owner $10,000Add: S Corp. $100,000

Individual Taxable Income $70,000 $80,000 $80,000 $170,000

Amount of regular income $70,000 $70,000 $80,000 $170,000

Amount of dividend income $10,000

Tax on regular income $13,294 $13,294 $15,794 $40,671

Tax on div. [at 15% tax ] $1,500

Total individual Tax $13,294 $14,794 $15,794 $40,671

Individual Income Tax $13,294 $14,794 $15,794 $40,671Corporate tax (see above) $22,250 $22,250 $18,850 $0Corp & Individual Tax $35,544 $37,044 $34,644 $40,671

chapter 3. rich corporation case. howard godfrey, ph.d., cpa professor of accounting ©howard...

Documents