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

question 95

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 situations.(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:

Tax on Sellers

A financial charge or levy imposed on product producers or sellers by the government, which often leads to the market price of the product increasing to cover the cost of the tax.

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, leading to market stability.

Tax on Sellers

A tax on sellers is a levy imposed by the government on sellers of certain goods and services, which often leads to a shift in supply curve and price adjustments.

Increases Supply

A rise in the quantity of a good or service that producers are willing and able to sell at a given price, often due to reductions in production costs or improvements in technology.