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 35%.

Question

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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 35%, the effective tax rate on the $200,000 profit is also 35%, regardless of whether cash is distributed or not.

Kyrsten Haas Expects Her S Corporation to Generate a Profit