During the Current Year, Maroon Company Had $125,000 Net Profit

question 107

Essay

During the current year, Maroon Company had $125,000 net profit from operations. Belinda, the sole owner of Maroon, is in the 33% marginal tax bracket. Determine the combined tax burden for Maroon and Belinda under the following independent situations. (Ignore any employment taxes.)
a. Maroon Company is a C corporation and all of its after-tax income is distributed to Belinda.
b. Maroon Company is a proprietorship and all of its after-tax income is withdrawn by Belinda.
c. Maroon Company is an S corporation and all of its after-tax income is distributed to Belinda.

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Definitions:

Bonus Plan

A compensation scheme that rewards employees beyond their regular salary, often based on performance metrics.