Bryan Houlberg expects his C corporation to generate a profit of $200,000.What is the effective tax rate on the $200,000 if net income after corporate tax is distributed to him as a dividend and his marginal tax rate on ordinary income is 39.6%?

Question

Quizplus · Accepted Answer

The corporation pays a 35% tax on the $200,000 profit, leaving $130,000. When distributed as a dividend, Bryan pays a 15% tax on the $130,000, resulting in an effective tax rate of 44.5% on the original $200,000.

Bryan Houlberg Expects His C Corporation to Generate a Profit