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?

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Definitions:

Southern States

A regional designation in the United States referring to states that are located in the southeastern and south-central parts of the country, each with its unique cultural, historical, and socio-political characteristics.

Secede

The act of formally withdrawing from an organization, alliance, or especially a political entity such as a country or union, often to express dissent or seek autonomy.

Bill of Rights

The first ten amendments to the United States Constitution, guaranteeing fundamental civil rights and liberties to American citizens.

Trial by Jury

A legal process in which a group of people (the jury) is selected to review evidence and make a decision in a court case, ensuring a fair trial.