Question

Fallon is a 100% owner of Fallon, Inc., a C Corporation. In the current year, Fallon, Inc., reports $150,000 of taxable income (all ordinary income) and distributes its after-tax income to Fallon. Assume Fallon’s marginal rate on ordinary income is 35% and her marginal rate on qualified dividends is 15%. Calculate the combined corporate and individual tax paid by Fallon and Fallon, Inc.

		a. $31,500.
		b. $49,275.
		c. $54,000.
		d. $52,500.

1. Cary owns 100% of Salt, an S corporation. Salt had net taxable income of $80,000 and made a $15,000 distribution to Cary. Assume Cary’s basis in Salt is $40,000 before considering these above transactions. What is Cary’s basis in Salt after the above transactions?

   		a. $95,000.
   		b. $120,000.
   		c. $105,000.
   		d. $55,000.
   		e. None of the above.

Answer 1

A) The combined corporate and individual tax paid by Fallon and Fallon, Inc. will be calculated as follow

= $150000 *35% = $52500 will be the tax paid .

As if the company has paid tax on dividends then it is exempt in the hands of individual . So $ 52500 will be the tax amount in the hands of fallon inc.

B) Cary’s basis in Salt after the above transactions will be $95000. Because  Cary owns 100% of Salt, an S corporation. So total incpme of Salt will be included in Cary Basis.