Question 2: Form of BusinessKate Brown has operated her small repair shop as a sole proprietorship for several years,but projected changes in her business's income have led her to consider incorporating. Kate ismarried and has two children. Her family's only income, her annual salary of $60,000, comesfrom operating the business. (The business actually earns more than $60,000, but Kate reinveststhe additional earnings in the business.) She itemizes deductions, and she is able to deduct$19,500. These deductions, combined with her four personal exemptions for 4*$3,950=$15,800,give her a personal taxable income of $24,700-$60,000 - $19,500 - $15,800.Of course, her actual taxable income, if she does not incorporate, would be higher by theamount of reinvested income. Kate estimates that her business earnings before salary and taxesfor the period 2016 to 2018 will be as follows:Earnings BeforeYearSalary and Taxes2016$ 90,0002017120,0002018150,0002523a. What would Brown's total taxes (corporate plus personal) be in each year under(1) A corporation? (2016 tax-$7,297.50)(2) A proprietorship? (2016 tax=$7,297.50)b. Should Brown incorporate? Discuss.

b. Should Brown incorporate? Discuss. No, Kate Brown should not incorporate her business as it…

Answered: Question 2: Form of Business Kate Brown…

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter13: Choice Of Business Entity—general Tax And Nontax Factors/formation

Section: Chapter Questions

Problem 47P

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