Reference no: EM131211224
Mr. Morad, who is in the 25% tax bracket, is the sole shareholder of Shiraz bakery, Shiraz’s average annual net profit from business (before deduction of Morad’s salary) is $135,000.
Instructions: For each of the following cases, compute the income tax burden on this profit, ignoring any payroll taxes and rounding up to next dollar.
a. Morad’s salary is $80,000, and Shiraz pays no dividends.
b. Morad’s salary is $80,000, and Shiraz distributes its after-tax income as a dividend.
c. Shiraz is an S corporation, Morad’s salary is $80,000, and shiraz makes no cash distributions.
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