Question

Richardson Company is in its first year of operations as a hardware and software retailer (with occasional consulting jobs). Richardson reports the following current year results (without respect to the type of entity): “Business” Income: Sales (net of returns and allowances) $ 490,000 Gross Consulting Fees Collected 30,000 Dividend Income (5% investment in Novice Software Co.) 4,000 Loss on Sale of Novice Stock ($28,000 - $33,000, held 11 months) ( 5,000) “Business” Expenses and Costs: Cost of Goods Sold (142,200) Salaries of 5 employees other than owner Tony Richardson ($30,000 each) (150,000) Payroll taxes paid on employees [($150,000 x .0765) + ($35,000 x .062)] ( 13,645) Health insurance coverage for employees ($3,000 x 5) ( 15,000) Retirement plan contributions for employees (10% of salaries) ( 15,000) MACRS depreciation on various company assets ( 35,748) Interest, rent, utilities, insurance, supplies, and miscellaneous expenses ( 59,337) Contributions to public charities ( 13,300) Compensation to Owners of “Business”: Reasonable salary compensation to Tony Richardson ( 65,000) Other cash payments to owners ( 20,000) Health insurance coverage for Tony Richardson ( 3,000) Retirement plan contribution for owner (10% of “reasonable salary”) ( 6,500) Tony and Ellen Richardson (both age 53) file a joint federal income tax return in the current tax year. They do not have any dependents. In addition to any compensation/income from the business described above, Ellen received a salary of $41,300 from ED Industries. Tony and Ellen also received $1,400 personal interest on a joint account, $1,200 personal dividends from jointly-held Thomson Company stock, and $9,200 from the sale of 100 shares of Thomson stock (originally acquired 5 years ago for $3,100). Tony and Ellen’s personal expenses for the year include $2,600 personal property taxes, $12,400 state income taxes, 10,300 charitable contributions (not including the amounts mentioned above), $8,800 interest on personal home mortgage, and $2,600 of unreimbursed employee expenses by Ellen.

Assuming that Richardson Company is operated as a C corporation (with Tony Richardson (DD) as a 100% shareholder), determine the final corporate income tax liability of Richardson Co., the Richardson’s final federal income tax liability any FICA taxes paid on Tony’s compensation by Tony and by Richardson Company. Determine the corporate income taxes paid, the FICA tax on TR paid by TR, the FICA tax on TR paid by the company, the unemployment tax on TR paid by the company, the federal income tax paid by the Richardsons, and the total taxes.

Answer 1

Tax year being compared:	C Corp
Corporate Income Taxes Paid	13,693
FICA Tax on TR – Paid by TR	1,017
FICA Tax on TR – Paid by Company	5,720
Unemp. Tax on TR - Paid by Company	3,510
Self-Employment Tax Paid by TR	NA
Fed Inc. Tax Paid by Richardsons	13,693
Total Taxes	37,633

1. Assuming that Richardson Company is operated as C Corporation.

Business Income

Sales (Net of Returns and allowances)$490,000

Cost of Goods sold(142,200)

Gross Profit 347,800

Other Income

Gross Consulting Fees collected30,000

Dividend Income (5% investment in Novice 4,000

Software Co.)

Gross Income381,800

Salaries of 5 employees other than Tony Richardson(150,000)

($30,000 each)

Payroll taxes paid on employees(13,645)

[($150,000 x .0765) + ($35,000 x .062)]

Health insurance coverage for employees ($3,000 x 5)(15,000)

Retirement plan contributions for employees(15,000)

(10% of salaries)

MACRS depreciation on various company assets(35,748)

Interest, rent, utilities, insurance, supplies,(59,337)

and miscellaneous expenses

Contributions to public charities(13,300)

Total Expenses 302,030

Profit from business 79,770

Income from Capital gain

Loss on Sale of Novice Stock ($28,000 - $33,000,(5,000)

held 11 months)           

Short Term Capital Loss(5,000)

Total Income74,770

Richardsons Federal Income tax liability13,693

(7,500 + 25% of 24,770)

FICA (74,770 x 7.65%)5,720

Unemployment Tax Payable

Total Payment to Tony65,000

Unemployment Tax Payable3,510

(Multiply by 0.054)

FICA by TR

Personal Income

Salary from ED Industries41,300

Interest from joint account1,400

Personal dividend from jointly held Thomson Company 1,200

Profit on sale of 100 shares of Thomson stock6,100

Less: Personal expenses

Personal property taxes(2,600)

State Income taxes(12,400)

Charitable contributions(10,300)

Interest on personal home mortgage(8,800)

Unreimbursed employee expenses by Ellen(2,600)

Total Income of TR13,300

FICA paid by TR1,017

(13,300 x 7.65)