Shelly Runs a Small Business as a Sole Proprietorship

question 80

Essay

Shelly runs a small business as a sole proprietorship.The business has average annual income of $60,000 and Shelly takes $30,000 out of the business for living expenses each year.If her marginal tax rate is 25 percent due to other income,what is the net income tax effect if she incorporates her business and takes the $30,000 as salary? (Ignore employment taxes.)

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Definitions:

Income Distributions

Payments made from a fund or account to investors, which can include dividends from stocks or interest from bonds.

Capital Gain Distributions

The payment of proceeds prompted by an investment fund's sale of stocks and securities, which are passed on to the fund's investors.

Pinnacle's NAV

The Net Asset Value of Pinnacle's investments, representing the total value of the entity's assets minus its liabilities.

Year-End Assets

The value of all assets held by an entity at the conclusion of a financial year.