Can Form 1120 Schedule M 3 Dividends 2019-2024

Hello and welcome to this session where we will look at the taxation of entities and the differences between operating as a sole proprietorship and a corporation. We will examine examples to illustrate the variation in taxation when income is taxed at the corporate level and when it flows directly to the owner in a sole proprietorship or partnership. Let's begin with example one, assuming the owner is single and the net income of the business is $50,000. We will compare the effects of operating as a sole proprietorship versus a corporation. In a sole proprietorship, the income flows directly to the owner. However, in a corporation, the income is taxed at the corporate level first. If we operate as a corporation, with a net income of $50,000, we need to multiply this by the corporate tax rate. Let's assume a different net income amount for practice purposes, such as $60,000. To calculate the corporate tax liability, we need to determine how much of the net income is taxed at what rates. For the first $50,000, the tax rate is $7,500. We then add 25% tax on the amount above $50,000, which is $10,000 in this case. Therefore, the total corporate tax responsibility for the $60,000 net income is $10,000. In contrast, a sole proprietorship does not pay corporate taxes. The income of $60,000 flows directly to the owner. After the corporation pays the $10,000 in taxes, $50,000 is left available to the owner. Now, let's assume that the $50,000 is distributed as a dividend. This dividend is subject to individual taxation. If the individual is single and has a taxable income of $60,000, they fall within the 25% tax bracket. However, dividends are subject to a different rate, which is the long-term capital gain rate. In this case, the long-term capital gain rate is 15%....