Kyrsten Haas expects her S corporation to generate a profit of $200,000.What is the effective tax rate on the $200,000 if no cash is distributed? Kyrsten's marginal tax rate on ordinary income is 39.6%.

Question

Quizplus · Accepted Answer

In an S corporation, profits are passed through to the shareholders and taxed at their individual tax rates. Since Kyrsten's marginal tax rate is 39.6%, the effective tax rate on the $200,000 profit would be 39.6%, regardless of whether cash is distributed or not.

Kyrsten Haas Expects Her S Corporation to Generate a Profit