Basics of Engineering Economy 1st Edition by Leland Blank,Anthony Tarquin

Exercise 7

CJ operates Ads + +, a legally registered Internet ad business.Assume he can file his federal income tax return as a small corporation or as a single individual.The GI of $73,000 is for Ads + + as a corporation, while the $5,000 salary is the amount CJ paid himself.(The excess of $0,000 between GI - E = $15,000 and CJ's salary is called retained earnings for Ads + +.Appendix B describes accounting reports.)

CJ estimates an effective federal tax rate of T e = 25% regardless of the method used to calculate taxes.For both methods of filing, determine (a) the estimated taxes using T e and ( b ) taxes using the tax rate tables.Which method results in lower taxes for CJ?