Income Taxes-The Capital-Ideas Company is in its development stage and is deciding how to formally organize its business venture. The founder, Rolf Lee, is considering organizing as either a proprietorship or a corporation. He expects revenues to be $2 million next year with total expenses amounting to $1.625 million, resulting in a taxable income of $375,000. Rolf is interested in estimating his federal income tax liability based on the schedules contained in Figure 3.6. CORPORATE MARGINAL INCOME TAX RATES TAXABLE INCOME OVER– BUT NOT OVER– MARGINAL TAX RATE – 50,000 15% 50,000 75,000 25% 75,000 100,000 34% 100,000 335,000 39% 335,000 10,000,000 34% 10,000,000 15,000,000 35% 15,000,000 18,333,333 38% 18,333,333 - 35% PERSONAL MARGINAL INCOME TAX RATES SINGLE MARRIED FILING JOINTLY TAXABLE INCOME TAXABLE INCOME OVER– BUT NOT MARGINALTAX RATE OVER– BUT NOT OVER– MARGINALTAX RATE — OVER– 10% 16,700 10% 8,350 8,350 15% 16,700 67,900 15% 33,950 33,950 25% 67,900 137,050 25% 82,250 82,250 28% 137,050 208,850 28% 171,550 171,550 33% 208,850 372,950 33% 372,950 372,950 35% 372,950 35% A. Calculate the amount of federal income tax that Rolf would pay if Capital-Ideas is organized as a proprietorship. What would be the marginal tax rate on the last dollar of taxable income and what would be the average tax rate?B. Calculate the amount of federal income tax that the Capital-Ideas Company would have to pay if the venture is organized as a regular corporation. What would be the marginal tax rate on the last dollar of taxable income and what would be the average tax rate?C. If the Capital-Ideas Company is organized as a corporation and all after-tax profits are paid out as dividends to Rolf Lee, what additional personal income taxes would be paid? What would be the marginal tax rate and the average tax rate on this personal income received from the corporation?

Income Taxes-The Capital-Ideas Company is in its development stage and is deciding how to formally organize its business venture. The founder, Rolf Lee, is considering organizing as either a...

Income Taxes-The Capital-Ideas Company is in its development stage and is deciding how to formally organize its business venture. The founder, Rolf Lee, is considering organizing as either a proprietorship or a corporation. He expects revenues to be $2 million next year with total expenses amounting to $1.625 million, resulting in a taxable income of $375,000. Rolf is interested in estimating his federal income tax liability based on the schedules contained in Figure 3.6.

CORPORATE MARGINAL INCOME TAX RATES
TAXABLE INCOME
OVER–	BUT NOT OVER–	MARGINAL TAX RATE
–	50,000	15%
50,000	75,000	25%
75,000	100,000	34%
100,000	335,000	39%
335,000	10,000,000	34%
10,000,000	15,000,000	35%
15,000,000	18,333,333	38%
18,333,333	-	35%
PERSONAL MARGINAL INCOME TAX RATES
SINGLE		MARRIED FILING JOINTLY
TAXABLE INCOME		TAXABLE INCOME
OVER–	BUT NOT	MARGINAL TAX RATE	OVER–	BUT NOT OVER–	MARGINAL TAX RATE
—	OVER–	10%		16,700	10%
8,350	8,350	15%	16,700	67,900	15%
33,950	33,950	25%	67,900	137,050	25%
82,250	82,250	28%	137,050	208,850	28%
171,550	171,550	33%	208,850	372,950	33%
372,950	372,950	35%	372,950		35%

A. Calculate the amount of federal income tax that Rolf would pay if Capital-Ideas is organized as a proprietorship. What would be the marginal tax rate on the last dollar of taxable income and what would be the average tax rate?

B. Calculate the amount of federal income tax that the Capital-Ideas Company would have to pay if the venture is organized as a regular corporation. What would be the marginal tax rate on the last dollar of taxable income and what would be the average tax rate?

C. If the Capital-Ideas Company is organized as a corporation and all after-tax profits are paid out as dividends to Rolf Lee, what additional personal income taxes would be paid? What would be the marginal tax rate and the average tax rate on this personal income received from the corporation?

May 25, 2022

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