Paige Is Starting Paige's Poodle Parlor and Is Considering Alternative

question 42

Essay

Paige is starting Paige's Poodle Parlor and is considering alternative organizational forms.She anticipates the business will earn $100,000 from operating before compensating her for her services and before charitable contributions.Page,who is single,has $6,000 of income from other sources and other itemized deductions of $12,000.Her compensation for services will be $50,000.Charitable contributions to be made by the business are expected to be $5,000.Other distributions (dividends)to her from the business are expected to be $14,000.
Required: Compare her current income tax assuming she operates the business as a proprietorship,an S corporation,and a C corporation.Ignore payroll and other taxes.

---

Definitions:

Net Income

The net income of a company, calculated by deducting all costs, taxes, and expenses from its total revenue.

Accounting Break-even

The point at which a company's total sales equal its expenses, thus resulting in neither profit nor loss, based strictly on accounting figures not considering cash flow.

Variable Cost

Costs that change in proportion to the activity of a business.

Fixed Costs

Fixed expenses unaffected by the volume of production or sales, like rent, insurance, and wages.