Megan operates a house
Chapter13: Choice Of Business Entity—general Tax And Nontax Factors/formation
Section: Chapter Questions
Problem 47P
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![Megan operates a housecleaning business as a sole proprietorship. She oversees a team of 10 cleaning personnel, markets the
business, and provides supplies and equipment. The business has been generating net taxable profits of $51,000 per year, before
considering the QBI deduction. As a sole proprietor, Megan qualifies for the 20 percent deduction, reducing taxable income from the
business to $40,800.
Required:
a. Assume that Megan's marginal tax rate on ordinary income is 35 percent and that she has no pressing need for cash flow from this
business. Should Megan consider incorporating and operating the business through a C corporation? Fill the below table to justify your
answers. (Ignore any payroll or self-employment tax considerations.)
Income tax liability if operated as a C corporation
Income tax savings
Should Megan consider incorporating and operating the business through a C corporation?
per year](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F88616eef-8ea4-4757-b701-b28470c8d1d6%2F4905200f-75f7-4aeb-a82d-1dc41790a03a%2Fuhonfp4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Megan operates a housecleaning business as a sole proprietorship. She oversees a team of 10 cleaning personnel, markets the
business, and provides supplies and equipment. The business has been generating net taxable profits of $51,000 per year, before
considering the QBI deduction. As a sole proprietor, Megan qualifies for the 20 percent deduction, reducing taxable income from the
business to $40,800.
Required:
a. Assume that Megan's marginal tax rate on ordinary income is 35 percent and that she has no pressing need for cash flow from this
business. Should Megan consider incorporating and operating the business through a C corporation? Fill the below table to justify your
answers. (Ignore any payroll or self-employment tax considerations.)
Income tax liability if operated as a C corporation
Income tax savings
Should Megan consider incorporating and operating the business through a C corporation?
per year
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