Jeremy is setting up a service business. He can either operate the business as a sole proprietorship or he can incorporate as a regular C corporation. He expects that the business will have gross income of $60,000 in the first year with expenses of $12,000 excluding the following: He plans to take $30,000 from the business for living expenses as a salary.
a. Compare his tax costs for 2004 considering only income taxes if he is single and he has no other income. Which option do you recommend based solely on these tax costs?
b. Refer to the information in Chapter 4 on employment taxes for employees and self-employed individuals. Complete the analysis of this problem considering both income and employment taxes.