Amber Company Has $100,000 in Net Income in the Current

question 81

Essay

Amber Company has $100,000 in net income in the current year before deducting any compensation or other payment to its sole owner, Alfredo. Assume that Alfredo is in the 33% marginal tax bracket. Discuss the tax aspects of each of the following independent arrangements. (Assume that any salaries are reasonable in amount and ignore any employment tax considerations.)
a. Alfredo operates Amber Company as a proprietorship.
b. Alfredo incorporates Amber Company and pays himself no salary and no dividend.
c. Alfredo incorporates Amber Company and pays himself a $50,000 salary and a dividend of $42,500 ($50,000 - $7,500 corporate income tax).

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Definitions:

Housing Developments

Planned residential communities, often including multiple houses, apartments, and other amenities, designed and built as a single project.

World War II

A global conflict that lasted from 1939 to 1945, involving most of the world's nations.

War Effort

The total mobilization of a nation's resources, including civilians and the military, towards the support of military operations during a war.

Nation's Output

The entire sum of the value generated from all products and services made in a country during a particular time frame, typically known as Gross Domestic Product (GDP).