Bono Owns and Operates a Sole Proprietorship and Has a 32

question 45

Essay

Bono owns and operates a sole proprietorship and has a 32 percent marginal tax rate. He provides his son, Richie, $12,000 a year for college expenses. Richie works as a street musician and has a marginal tax rate of 15 percent. What could Bono do to reduce his family tax burden? How much pretax income does it currently take Bono to generate the $12,000 after taxes given to Richie? If Richie worked for his father's sole proprietorship, what salary would Bono have to pay him to generate $12,000 after taxes? (Ignore any Social Security, Medicare, or self-employment tax issues.)How much money would this strategy save?

---

Definitions:

Compulsory School-Attendance Laws

These are legal requirements demanding that children of certain ages attend school, aimed at ensuring universal education.

Scottsboro Boys

The case of nine African American teenagers accused in Alabama in 1931 of raping two white women, which resulted in legal battles highlighting racial injustice.

Southern Democrats

A faction of the Democratic Party in the United States that historically advocated for the interests of the southern states, often including the support of states' rights and segregation.

Good Neighbor Policy

A United States foreign policy doctrine, adopted by President Franklin D. Roosevelt in 1933, aimed at strengthening friendly relations with Latin American countries.