Question: You want to compare the earnings from two different legal forms for a

Question

Question: You want to compare the earnings from two different legal forms for a firm: Corporate and Proprietor. Your pre-tax income is $500,000 in both. However there is a difference in the taxes you pay.

1) Corporate pays corporate tax rate of 30%. After paying corporate taxes the rest is distributed as dividends to owners. They pay personal tax on these dividends at the rate 18%.

2) Proprietor pays personal tax on 36% only.

Create an Excel worksheet in which you show the pre-tax earnings, the taxes paid, the earnings after taxes for both corporate and proprietor.

Explanation / Answer

Corporate Proprietor 30% 36% Income 500000 500000 tax 30/36% 150000 180000 Earnings after paid 350000 320000 As the tax rate is higher in later one net income reduces than the former example

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