Exam 1: Introduction to Taxation

Sylvester, single, has $10,400 in deductions when filing his income tax. His sole proprietorship averages net income of $125,000 annually. He needs $50,000 per year to live on. If he incorporates his business, would he pay more or less in total income taxes if he takes a salary of $50,000 for his living expenses? (Consider only income taxes.)

What is the marginal tax rate for a corporation with $110,000 of taxable income?

_____ 15. Corporations are only allowed to carry their net operating losses forward.

Ian contributes $9,000 in exchange for a 30 percent interest in a C corporation. For 2016, the corporation reported a total loss of $35,000 and made no cash distributions. For 2017, the corporation reported net income of $45,000 and made a cash distribution to the shareholders. Ian received $5,000 of this cash distribution in 2017. Ian is in the 28% marginal tax bracket in both 2016 and 2017. How much income tax did Ian save for 2016 as a result of his share of loss from this corporation and how much income tax does Ian pay as a result of his ownership in the corporation for 2017?

Elena owns 40% of Martinez, Inc., a regular C corporation, that reported net income of $80,000 for the year. During the year $8,000 was distributed to Elena from the corporation. How much income from the corporation should Elena include in her taxable income for the year?

Which of the following best describes vertical equity?

______ 1. A hidden tax is one that is included with a payment but not specifically identified.

What is Jerry's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as a partnership?