Discussion
Calculate the tax disadvantage to organizing a U.S. business today as a corporation, as compared to a Partnership, under the following conditions. Assume that all earnings will be paid out as cash dividends.
Operating income (operating profit before taxes) will be $500,000 per year under either organizational form. The tax rate on corporate profits is 35%, the average personal tax rate for the partners is also 35%, and the capital gains tax rate on dividend income is 15%.