Carol recently incorporated her sole proprietorship and is considering making an S election.
Carol recently incorporated her sole proprietorship and is considering making an S election. The corporation generates $200,000 of gross revenue and incurs expenses of $75,000, before paying Carol's salary. She plans to take a gross salary of $60,000 from the business, and this will be her only income for the year.
Task:
Compare the total tax burden for Carol and the corporation with and without the S election. Consider both income and employment taxes. Carol is single and does not itemize her deductions. She plans to reinvest the corporation's net income after taxes into the business.
Based on the tax burden alone for 2005, should Carol make the selection? Support or defend your opinion with the necessary calculations to justify Carol's decision.
The problem requests a comparison in the amount of total tax to be paid as a "C" corporation, or as an "S" corporation. The fact pattern is identical. The question is whether Carol should elect "S" status for her corporation.
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- 157665.xlsx
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