Charleston Corporation (CC) now operates as a \"regular\"corporation, but it is
ID: 2771068 • Letter: C
Question
Charleston Corporation (CC) now operates as a "regular"corporation, but it is considering a switch to S Corporationstatus. CC is owned by five stockholders who each hold 20% ofthe stock, and each faces a personal tax rate of 38%. Thefirm earns $2,000,000 per year before taxes, and since it has noneed for retained earnings, it pays out all of its earnings asdividends. Assume that the corporate tax rate is 35% and thepersonal tax rate is 38%. How much more (or less) spendableincome would each stockholder have if the firm elected SCorporation status?$86,800
i need the formula, more details please
Explanation / Answer
CC is owned by 5 stockholders, each one hold 20% of thestock. Total Earnings per year before taxes of the firm $2,000,000 Personal tax rate 38% Corporate tax rate 35% stockholder's stock worth ($2,000,000 * 0.20) $400,000 Calculating Each Stockerholder's Net Income: Earnings Before Tax (EBT) for single stockholder $400,000 Less: Personal tax (38%) $152,000 $248,000 Less: Corporate tax (35%) $86,800 Net Income $161,200 CC is owned by 5 stockholders, each one hold 20% of thestock. Total Earnings per year before taxes of the firm $2,000,000 Personal tax rate 38% Corporate tax rate 35% stockholder's stock worth ($2,000,000 * 0.20) $400,000 Calculating Each Stockerholder's Net Income: Earnings Before Tax (EBT) for single stockholder $400,000 Less: Personal tax (38%) $152,000 $248,000 Less: Corporate tax (35%) $86,800 Net Income $161,200Hope it may help you CC is owned by 5 stockholders, each one hold 20% of thestock. Total Earnings per year before taxes of the firm $2,000,000 Personal tax rate 38% Corporate tax rate 35% stockholder's stock worth ($2,000,000 * 0.20) $400,000 Calculating Each Stockerholder's Net Income: Earnings Before Tax (EBT) for single stockholder $400,000 Less: Personal tax (38%) $152,000 $248,000 Less: Corporate tax (35%) $86,800 Net Income $161,200