Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket. With respect to the current year, which of the following statements is incorrect?
A)Flycatcher cannot avoid the corporate tax altogether by paying out all $100,000 of net profit as dividends to the shareholders.
B)Nancy incurs income tax of $1,500 on her dividend income.
C)Pasqual incurs income tax of $1,500 on his dividend income.
D)Flycatcher pays corporate tax of $22,250.
E)None of the above.

Question

Quizplus · Accepted Answer

Pasqual incurs income tax of $1,500 on his dividend income is incorrect because dividends are typically taxed at a lower rate than ordinary income, and Pasqual is in the 15% marginal tax bracket, which means his qualified dividends would be taxed at 0%.

Flycatcher Corporation, a C Corporation, Has Two Equal Individual Shareholders