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5 August, 11:21

Tawana owns and operates a sole proprietorship and has a 37 percent marginal tax rate. She provides her son, Jonathon, $8,000 a year for college expenses. Jonathon works as a pizza delivery person every fall and has a marginal tax rate of 15 percent. a. What could Tawana do to reduce her family tax burden?

Employ her son in her sole proprietorship

Ask Jonathon to find a new job

Start a new enterprise

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  1. 5 August, 14:17
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    The answer is: Employ her son in her sole proprietorship

    Explanation:

    If Tawana employs her son, she can deduct he $8,000 she gives him from her adjusted gross income. She would save $2,960 ($8,000 x 37%) from her income taxes. Sh would probably have to pay her son's taxes which are lower and add up to $1,200.

    At the end Tawana would be saving $1,760 ($2,960 - $1,200) which is the difference between her tax rate and her son's tax rate.
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