1.Bulldog Corporation reported taxable income of $500,000 this year, before any deduction for any payment to its sole shareholder and employee, Georgia Brown. Bulldog chose to pay a bonus of $100,000 to Georgia at year-end.
The bonus meets the requirements to be “reasonable” and is therefore deductible by Bulldog. Georgia is subject to a marginal tax rate of 35 percent on the bonus. What is the income tax imposed on the corporate income earned by Bulldog and the income tax on the bonus paid to Georgia?
Corporate tax $84,000
Shareholder tax $35,000
Total income tax $119,000
Explanation
Corporate tax: $400,000 × 21%$ 84,000
Shareholder tax: $100,000 × 35% 35,000
Total income tax $ 119,000
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