Answered

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Dave and his friend Stewart each owns 50 percent of KBS. During the year, Dave receives $75,000
compensation for services he performs for KBS during the year. He performed a significant amount of
work for the entity, and he was heavily involved in management decisions for the entity (he was not a
passive investor in KBS). After deducting Dave's compensation, KBS reports taxable income of
$30,000.
How much FICA and/or self-employment tax is Dave required to pay on his compensation and his
share of the KBS income if KBS is formed as a C corporation, an S corporation, or a limited liability
company (ignore the 0.9 percent additional Medicare tax)? (Do not round any percentage
calculations. Round other intermediate calculations and final answers to the nearest whole dollar
amount.)
C corporation
S corporation
Limited liability company

Sagot :

Answer: $12717

Explanation:

1. The amount of FICA and/or self-employment tax that Dave is required to pay on his compensation and his

share of the KBS income if KBS is formed as a C corporation, will be:

= 7.65% × $75000

= 7.65/100 × $75000

= 0.0765 × $75000

= $5738

2. As an S Corporation will be:

= 7.65% × $75000

= 7.65/100 × $75000

= 0.0765 × $75000

= $5738

3. As a limited liability company will be:

Dave's compensation = 75,000

Dave's portion of income will be calculated as:

= 50% × $30,000

= 0.5 × $30,000

= $15,000

Total will then be:

= $75000 + $15000 = $90000

We then calculate the net earnings which will be:

= 92.35% × $90000

= 0.9235 × $90000

= $83115

The FICA and/or self-employment tax that Dave is required to pay will then be:

= 15.3% × $83115

= 0.153 × $83115

= $12717

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