Calculate the Tax Disadvantage to Organizing a U

question 45

Multiple Choice

Calculate the tax disadvantage to organizing a U.S.business today,after passage of the Jobs and Growth Tax Reconciliation Act of 2003,as a corporation versus a partnership,given the following assumptions.All earnings will be paid out as dividends,and operating income before taxes will be $200,000.The effective corporate tax rate is 35%,and the tax rate on corporate dividends is 15%.The average personal tax rate for partners in the business is 35%.

• A) $17,500
• B) $19,500
• C) $20,000
• D) $22,250

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Definitions:

Units-Of-Activity

A depreciation method that allocates expenses based on the actual usage or activity levels of an asset.

Salvage Value

A projection of an asset's value at the end of its period of functionality.

Depreciation Cost

The systematic allocation of an asset's cost over its useful life to reflect the loss in value over time.

Plant Asset

Long-term tangible assets that are used in the production of goods and services, including machinery, buildings, and equipment.