Taxation of Various Business Forms
Thomas is the sole owner of Bear Company, which makes custom blankets. This year, Bear's taxable income before any compensation to Thomas was $80,000. Bear also had $30,000 of municipal bond interest. Thomas has significant income from other sources. Thomas is single and in the 24% marginal tax bracket. Determine the tax consequences to both Bear Company and Thomas under the following situations (ignore the 3.8% Medicare surtax on Net Investment Income):
- Bear is a C corporation and pays no dividends or salary to Thomas.
- Bear is a C corporation and distributes $50,000 of dividends to Thomas.
- Bear is a C corporation and pays $50,000 salary to Thomas.
- Bear is a sole proprietorship and Thomas withdrew $0.
- Bear is a sole proprietorship and Thomas withdrew $50,000.
Write a letter to Thomas summarizing the tax effects of the various scenarios, including some tax planning recommendations. Include an explanation of general concepts surrounding the calculation.
Submission Requirements
- Support your paper with the primary internal revenue section (I.R.C.) & at least 4-5 tax, credible, legislative, or court references.
- Reference the Citation and Style Manual as needed.
Your paper should be 4 pages in length. Include at least four credible scholarly references not older than 5 years old. No AI content!