A business generates profit of $100,000. The owner has a 37% marginal tax rate. What amount of corporate and individual income tax will be paid on this profit if the business is a regular corporation and no income is distributed?
A) Corporate tax, $21,000; individual tax, $37,000
B) Corporate tax, $21,000; individual tax, $0
C) Corporate tax, $0; individual tax, $37,000
D) Corporate tax, $21,000; individual tax, $15,800

Question

Quizplus · Accepted Answer

If the business is a regular corporation (also known as a C corporation), it pays corporate income tax on its profits. The owner pays individual income tax only on income that is distributed to them, such as dividends. Since no income is distributed in this scenario, the owner pays no individual income tax. The corporate tax rate would apply to the $100,000 profit, but the specific rate isn't provided in the options. Option B is correct because it reflects corporate tax being paid with no individual tax due to no income distribution.

A Business Generates Profit of $100,000