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:

Small Business

An independently owned and operated company that is limited in size and revenue depending on the industry.

Service Providers

Entities that offer an array of services across various sectors, including telecommunications, health, or financial services, to satisfy customer needs.

Retailers

Intermediaries who buy products from manufacturers (or other intermediaries) and sell them to consumers for home and household use rather than for resale or for use in producing other products.