Assuming Orie and Jane’s goal is to minimize their currentfederal income tax exposure, one can compare the married filingjoint and corporate tax rates to achieve this goal. Since Orie andJane have $200,000 of taxable income not related to their soleproprietorship, they are currently in the 24 percent tax bracket.The task is to allocate the $250,000 between Orie and Jane andtheir corporation to minimize their current liability. Thecorporate tax rate is 21 percent and is lower than Orie and Jane’smarginal tax rate of 24 percent. To take advantage of the 21percent corporate tax rate, all of the expected $250,000 in profitsshould be retained in the corporation. Any income shifted to Orieand Jane would be taxed at a rate higher than the corporate taxrate of 21 percent.
