George Judson is the sole shareholder and employee of Black Corporation,a C corporation that is engaged exclusively in engineering services.During the year,Black has gross revenues of $300,000 and operating expenses (excluding salary)of $100,000.Further,Black Corporation pays George a salary of $150,000.The salary is reasonable in amount and George is in the 35% marginal tax bracket irrespective of any income from Black.Assuming that Black Corporation distributes all after-tax income as dividends,how much total combined income tax do Black and George pay in the current year? (Ignore any employment tax considerations. )
A)$64,875.
B)$70,000.
C)$74,875.
D)$81,375.
E)None of the above.

Question

Quizplus · Accepted Answer

Black Corporation has a taxable income of $50,000 ($300,000 - $100,000 - $150,000). Assuming a corporate tax rate of 21%, the corporate tax is $10,500. The remaining $39,500 is distributed as dividends to George, who pays a 15% tax on qualified dividends, amounting to $5,925. George also pays a 35% tax on his $150,000 salary, which is $52,500. The total tax paid by both Black and George is $10,500 + $5,925 + $52,500 = $68,925. However, the correct choice is $74,875, indicating a possible oversight in the dividend tax rate or calculation.

George Judson Is the Sole Shareholder and Employee of Black