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Crocker and Company (CC) is a C corporation
Crocker and Company (CC) is a C corporation. For the year, CC reported taxable income of $558,000. Al the ere of the year. CC distributed Al as agen-t. earnings to Jimmy, the company, sole shareholder. Jimmy, marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent, including the ne investment income tax. What is the overall tax rate on Crocker a. Company, pre-tax income
Expert Solution
Computation of Overall Tax Rate on Crocker and Company's Pre-tax Income:
There is a flat tax rate of 21% on C corporation.
So,
Tax on taxable income = 21% * $558,000 = $117,180
Amount of Dividend Distributed = Taxable Income - Tax Paid
= $558,000-$117,180
= $440,820
Jimmy will pay dividend tax of $440,820*23.8% = $104,915.16
Total Taxes paid on Crocker Pre-tax Income = Flat Tax Paid + Dividend Tax paid by Sole Shareholder
= $104,915.16 + $117,180
= $222,095.16
Overall Tax Rate = $222,095.16/$558,000 =39.8%
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