You own 100 shares of a Sub Chapter "S" corporation in the U.S.. The corporation earns $5.00 per share before taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 40% and your personal tax rate on (both dividend and non-dividend)income is 30%, then how much money is left for you after all taxes have been paid?

Question

Quizplus · Accepted Answer

The corporation earns $5.00 per share before taxes, so the total income earned by the corporation is 100 shares x $5.00 per share = $500.00. 
The corporate tax rate is 40%, so the corporation will pay $500 x 0.40 = $200.00 in taxes. 
This leaves $500.00 - $200.00 = $300.00 available for distribution to shareholders. 
Since the Sub Chapter "S" corporation does not pay taxes at the corporate level, this $300.00 is considered "pass-through income" and will be taxed at the shareholders' personal tax rates. 
Assuming a personal tax rate of 30%, the shareholder will pay $300.00 x 0.30 = $90.00 in taxes. 
Therefore, the amount of money left for the shareholder after all taxes have been paid is $300.00 - $90.00 = $210.00. 
Thus, the correct choice is C.

You Own 100 Shares of a Sub Chapter "S" Corporation