Problem NO: 17

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 expen

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. 

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a. What could Tawana do to reduce her family tax burden? 

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b. How much pretax income does it currently take Tawana to generate the $8,000 (after taxes) given to Jonathon? 

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c. If Jonathon worked for his mother’s sole proprietorship, what salary would she have to pay him to generate $8,000 after taxes (ignoring any Social Security, Medicare, or self-employment tax issues)? 

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d. How much money would the strategy in part (c) save?  

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