Assume that pre-tax profit of $50,000 has been earned by a business, and the owner/proprietor wants to withdraw all of the after-tax profit for personal use. Assume the tax rate for a C corporation is 34%, while the rate for a person is 27%. The after-tax earnings available under the corporate and proprietorship forms are:
A)for a corporation, $33,000; for a proprietorship, $36,500.
B)for a corporation, $23,760; for a proprietorship, $36,500.
C)for either a corporation or a proprietorship, $36,500.
D)for either a corporation or a proprietorship, $23,760.

Question

Quizplus · Accepted Answer

For the C corporation, the tax on the pre-tax profit of $50,000 would be $17,000 (34% of $50,000), leaving after-tax earnings of $33,000. 
For the proprietorship, the income is taxed at the personal income tax rate of 27%, so the after-tax earnings would be $36,500 (73% of $50,000). 
Therefore, the proprietorship form would result in more after-tax earnings for the owner/proprietor.

Assume That Pre-Tax Profit of $50,000 Has Been Earned by a Business