Jabar Corporation, a C corporation, projects that it will have taxable income of $255,000 before incurring any lease expenses. Jabar's tax rate is 35 percent. Abdul, Jabar's sole shareholder, has a marginal tax rate of 39.6 percent on ordinary income and 20 percent on dividend income. Jabar always distributes all of its after-tax earnings to Abdul.
a.What is the amount of the overall tax (corporate level + shareholder level) on Jabar Corp.'s $255,000 prelease expense income if Jabar Corp. distributes all of its after-tax earnings to its sole shareholder, Abdul (Include the Medicare Contribution Tax on dividend and rental income.)?
- Taxable income before lease payment
- Lease payment
- Entity tax
- After-tax entity earnings
- Abdul's tax on dividends
- Abdul's tax on lease payment
- Overall tax
b.What is the amount of the overall tax on Jabar Corp.'s $255,000 prelease expense income if Jabar leases equipment from Abdul at a cost of $26,350 for the year (Include the Medicare Contribution Tax on dividend and rental income.)?
- Taxable income before lease payment
- Lease payment
- Entity tax
- After-tax entity earnings
- Abdul's tax on dividends
- Abdul's tax on lease payment
- Overall tax
c.What is the amount of the overall tax on Jabar Corp.'s $255,000 prelease expense income if Jabar Corp. leases equipment from Abdul at a cost of $26,350 for the year but the IRS determines that the fair market value of the lease payments is $18,000 (Include the Medicare Contribution Tax on dividend and rental income.)?
- Taxable income before lease payment
- Lease payment
- Entity tax
- After-tax entity earnings
- Abdul's tax on dividends
- Abdul's tax on lease payment
- Overall tax