or the current year, Custom Craft Services Inc. (CCS), a C corporation, reports taxable income of...

or the current year, Custom Craft Services Inc. (CCS), a C corporation, reports taxable income of $302,000 before paying salary to Jaron the sole shareholder. Jaron’s marginal tax rate on ordinary income is 35 percent and 15 percent on dividend income. Assume CCS’s tax rate is 35 percent. a. How much total income tax will Custom Craft Services and Jaron pay (combining both corporate and shareholder level taxes) on the $302,000 taxable income for the year if CCS doesn’t pay any salary to Jaron and instead distributes all of its after-tax income to Jaron as a dividend (assume Jaron is not subject to the net investment income tax or the additional Medicare tax)?

b. How much total income tax will Custom Craft Services and Jaron pay (combining both corporate and shareholder level taxes) on the $302,000 of income if CCS pays Jaron a salary of $212,000 and distributes its remaining after-tax earnings to Jaron as a dividend (assume Jaron is not subject to the net investment income tax or the additional Medicare tax)?

Expert Solution

The answer for above problem is explained below.

ekkarill92 answered 14 hours ago

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