In 2014,Craig and Kathy Koehler Owned a Small Business Which

question 35

Multiple Choice

In 2014,Craig and Kathy Koehler owned a small business which was held as a proprietorship in Kathy's name.They were thinking of incorporating if that would lower their total tax liability.The Koehlers expected the company to earn $100,000 before taxes next year.They planned to take out salaries of $45,000,and to reinvest the rest in the business.Their personal deductions total $8,150 and they will file a joint return for their personal income.(1) What is their expected total tax liability as a proprietorship? (2) As a corporation?
(3) Based on current taxes,should they incorporate?

• A) $23,304.50;$14,675.00;Yes
• B) $14,675.00;$13,427.50;Yes
• C) $23,304.50;$13,427.50;Yes
• D) $15,212.50;$23,450.00;No
• E) $20,778.00;$23,450.00;No

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Definitions:

Operating Activities

Activities that constitute the primary or main activities of a business, directly related to its operations and core business activities.

Net Income

The net income a company earns following the deduction of all expenses and taxes from its total revenues.

Indirect Method

A technique used in cash flow statements to reconcile net income with cash flow from operating activities, by adjusting non-cash transactions and changes in working capital.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues.