Asked by Libby Marie on May 22, 2024
Verified
Suppose pre-tax earnings are $100,000.00 and the corporate tax rate is 42%. How much additional money can a business owner receive by declaring the earnings as personal income which is taxed at a rate of 31%?
A) $11,000.00
B) $42,000.00
C) $31,000.00
D) $3,200.00
Corporate Tax Rate
The proportion of a company's earnings allocated to the state in the form of taxes.
Personal Income
The total amount of income earned by an individual from all sources, including employment, investments, and other forms of earnings.
Pre-tax Earnings
The amount of income earned before taxes have been deducted.
- Comprehend the principles and benefits associated with establishing a corporation, notably the aspects of limited liability and taxation considerations.
Verified Answer
RJ
ruixin jiangMay 27, 2024
Final Answer :
A
Explanation :
By declaring the earnings as personal income taxed at 31%, the owner would pay $31,000 in taxes ($100,000 * 0.31), compared to $42,000 if taxed at the corporate rate of 42% ($100,000 * 0.42). The difference is $11,000 ($42,000 - $31,000), which is the additional money the owner can receive.
Learning Objectives
- Comprehend the principles and benefits associated with establishing a corporation, notably the aspects of limited liability and taxation considerations.