Calculate the tax disadvantage to organizing a U.S. business
Calculate the tax disadvantage to organizing a U.S. business today as a corporation, as a 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% (.35), the average personal tax rate for the partners is also 35% (.35), and the capital gain tax rate on dividend income is 15% (.15).