A sole proprietor in the 35% tax bracket pays her 16-year-old son a reasonable salary of $10,000 for services performed for the proprietorship. Compute the family's tax savings if the son has no other income, is claimed as a dependent on his parents' return, and takes a $5,950 standard deduction.

Question

Quizplus · Accepted Answer

The son's taxable income is $4,050 ($10,000 - $5,950 standard deduction). At the 10% tax rate, the son's tax is $405. The parent's tax savings is $3,500 (35% of $10,000). The net family tax savings is $3,095 ($3,500 - $405).

A Sole Proprietor in the 35% Tax Bracket Pays Her