Jayzee is a single taxpayer who operates a sole proprietorship. He expects his taxable income next year to be $150,000, of which $125,000 is attributed to his sole proprietorship. Jayzee is contemplating incorporating his sole proprietorship. Using the 2018 single individual tax brackets and the corporate tax brackets, how much current tax could this strategy save Jayzee? (Ignore any Social Security, Medicare, or Self Employment Tax issues.) How much income should be retained in the corporation? (Use tax rate schedule)
Note: New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change.

Question

Quizplus · Accepted Answer

The Answer of Jayzee is a single taxpayer who operates a sole proprietorship. He expects his taxable income next year to be $150,000, of which $125,000 is attributed to his sole proprietorship. Jayzee is contemplating incorporating his sole proprietorship. Using the 2018 single individual tax brackets and the corporate tax brackets, how much current tax could this strategy save Jayzee? (Ignore any Social Security, Medicare, or Self Employment Tax issues.) How much income should be retained in the corporation? (Use tax rate schedule)
Note: New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change.

Jayzee Is a Single Taxpayer Who Operates a Sole Proprietorship