Calculate the Tax Disadvantage to Organizing a U

question 64

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 $1,500,000.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) $146,250
• B) $152,250
• C) $166,850
• D) $170,375

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Definitions:

Donor Restrictions

Conditions placed by donors on the use or timing of use of donated assets, requiring organizations to use the assets as specified.

Depreciation Expense

A measure of the cost allocated for the reduction in value of a tangible fixed asset over its useful life.

Health Care Entities

Organizations that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of healthcare to patients.

Unconditional Promises

Commitments or guarantees made without any conditions attached, often used in the context of financial agreements or contracts.