Determining corporation and partnership

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Calculate the tax disadvantage to organizing a U. S. business today, after passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003, as a corporation versus a partnership under the following conditions. Assume that all earnings will be paid out as cash dividends. Operating income ( operating profit before taxes) will be $ 500,000 per year under either organizational form; the effective corporate profits tax rate is 35 percent ( T c 0.35); the average personal tax rate for the partners of the business is also 35 percent ( T p 0.35); and the capital gains tax rate on dividend income is 15 percent ( T cg 0.15). Then, recalculate the tax disadvantage using the same income but with the maximum tax rates that existed before 2003. These rates were 35 percent ( T c 0.35) on corporate profits and 38.6 percent ( T p 0.386) on personal investment income.

Reference no: EM13115403

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