Question

In 2019, Sally and Sherry’s business, SS Express, had the following activities: Ordinary Business Net Income $60,000 Distribution to Sally $8,000 Distribution to Sherry $10,000 Charitable Contribution $8,000 How would each item above be taxed to Sally, Sherry, and SS Express if they operate their business as a C Corporation?

Answer 1

Answer:

Working notes:

In c corporation company and share holders are treated as seperate entities,

and the shareholders are liable to pay tax on the dividend paid by the c corporation, and it also it somewhat leads to double taxation if dividends are paid as also c-corporations are also liable

Charitable contributions are allowed as deductions upto 10 % of the taxable income of the c corporation.

Calculation of taxable incomes:

C-corporation = net business income (60,000 $) + dividends paid (8,000 $ + 10,000 $)

Less : Charitable donation (upto 10% of taxable income) = (78,000 x 10%) = (7,800 $)

= Taxable income = 70,200 $

For Share holders:

Sally: Taxable income = 8,000 $

Sherry: Taxable income = 10,000 $

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