Crocker and Company (CC) is a C corporation. For the year, CC reported taxable income of...

Crocker and Company (CC) is a C corporation. For the year, CC reported taxable income of $566,000. At the end of the year, CC distributed all its after-tax earnings to Jimmy, the company's sole shareholder. Jimmy's marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent, including the net investment income tax. What is the overall tax rate on Crocker and Company's pre-tax income?

A) 18.8%

B) 23.8%

C) 21

D) 39.8

E) 66.7

Solutions

Expert Solution

corporate tax rate = 21%

so tax paid by the cc corporation = 566000*21% = 118600

So dividend = pretax income - tax = 566000 - 118600 = 447,140

marginal tax on dividend = 23.8%

so tax on 447,140 = 447,140 * 23.8% = 106,419.32

Total = 118,600 + 106,419.32 = 225,279.32

Overall tax = Total tax / Taxable income

= 225,279.32 / 566000

= 39.80%

Option D is correct

jeff jeffy answered 2 years ago

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