Suppose pre-tax earnings are $100,000.00 and the corporate tax rate is 42%. How much additional money can a business owner receive by declaring the earnings as personal income which is taxed at a rate of 31%?
A)$11,000.00
B)$42,000.00
C)$31,000.00
D)$3,200.00

Question

Quizplus · Accepted Answer

By declaring the earnings as personal income taxed at 31%, the owner would pay $31,000 in taxes ($100,000 * 0.31), compared to $42,000 if taxed at the corporate rate of 42% ($100,000 * 0.42). The difference is $11,000 ($42,000 - $31,000), which is the additional money the owner can receive.

Suppose Pre-Tax Earnings Are $100,000