| Course | AC507 Business Taxation and Strategies |
|---|---|
| Unit | Unit 1 |
| Paper type | Entity choice discussion |
| Length | About 400 words, 2 pages double-spaced |
| Format | APA 7 discussion post |
| School | Purdue University Global |
| Program | MS in Accounting |
| Updated | October 2026 |
Free sample paper for AC507 Unit 1
$150,000 of Piano Work, Two Ways to Be Taxed: A Unit 1 Entity Choice Discussion With the Arithmetic Shown
AC507 · Unit 1 Discussion
Posted by [Student Name]
The owner, her business and every figure are composite; 2025 rates, brackets and the $31,500 standard deduction are used; the statutes and publication cited are real; this is coursework analysis, not tax advice.
Initial Post
Facts: one owner, $150,000 of net profit before any pay to herself, a spouse earning $60,000 in wages, a joint return, 2025 brackets and the $31,500 standard deduction.
Single-member LLC. The business is disregarded, so all profit is self-employment income. The self-employment base is 92.35 percent of profit, $138,525, and the combined Social Security and Medicare charge on it is $21,194 (Tax on self-employment income, 26 U.S.C. § 1401, 2018). Half, $10,597, is deductible. She deducts a fifth of her $139,403 of business income, $27,881, under the pass-through deduction (Qualified business income, 26 U.S.C. § 199A, 2018). Taxable income is $140,022 and income tax $20,633. Federal total: $41,827.
S corporation. She pays herself a salary of $85,000, which carries $13,005 of payroll tax across both halves. The remaining $58,498 of profit passes through on her K-1 without payroll tax. Her qualified business income deduction shrinks to $11,700, because wages do not count as business income. Taxable income is $160,298 and income tax $25,094. Federal total: $38,099.
The S election saves $8,189 of payroll tax but gives back $4,461 of income tax through a smaller qualified business income deduction, so the real saving is about $3,728, less than half of what the payroll comparison alone suggests.
Then subtract the costs of the election: a payroll service, state unemployment tax, a separate corporate return, roughly $2,000 a year in all. The net benefit is about $1,700. The salary must also be reasonable for the work she does, and the IRS expects S corporation owners who work in the business to pay themselves wages comparable to what they would pay someone else (Internal Revenue Service, 2025). If $85,000 is challenged as too low, the saving shrinks further.
At this profit level, I would stay an LLC for now and revisit the election if profit passes about $200,000.
Reply to Andre
Andre, you recommended the S election for your client at $90,000 of profit. Once you set a reasonable salary near that level, how much profit is left to escape payroll tax?
References
Internal Revenue Service. (2025). Instructions for Form 1120-S: U.S. income tax return for an S corporation. U.S. Department of the Treasury.
Qualified business income, 26 U.S.C. § 199A (2018).
Tax on self-employment income, 26 U.S.C. § 1401 (2018).
AC507 Unit 1 instructions, in plain terms
The first AC507 board asks you to compare two business forms for a client using actual numbers. State the facts that drive the answer: profit, filing status, other household income and the tax year whose rates you use. Compute the full federal cost under each form, not only payroll or self-employment tax, so the pass-through deduction and the deductible half of self-employment tax show up in each column. For an S corporation, choose a salary you can defend as reasonable and say why. Subtract the costs of running the more complex form. Give a recommendation tied to the numbers and say at what profit level it would change. Reply to a classmate by testing a recommendation against the assumption that drives it. Reference the statutes and IRS guidance you rely on in APA 7.
How the AC 507 Unit 1 example is put together
The sample's facts give $150,000 of profit, a $60,000 spouse wage, a joint return and 2025 figures. The LLC column computes self-employment tax on 92.35 percent of profit, deducts half, takes a $27,881 pass-through deduction, and reaches $41,827 of federal tax. The S column pays an $85,000 salary with $13,005 of payroll tax, passes $58,498 through, takes an $11,700 deduction and reaches $38,099. The highlighted sentence shows that $8,189 of payroll savings shrinks to $3,728 once the smaller deduction is counted. A paragraph subtracts about $2,000 of election costs and raises reasonable compensation. The recommendation keeps the LLC until profit nears $200,000, and the reply questions a classmate's election at $90,000.
AC507 Unit 1 rubric: what earns full points
This AC507 post is scored on whether both columns are complete and whether the advice matches the totals. Graders check self-employment tax, payroll tax, the deductible portions and the qualified business income deduction under each structure. The rubric rewards students who see that a lower salary reduces payroll tax but also reduces the pass-through deduction, and who count the costs of the S election. A defensible salary with a reason earns credit, as does stating the profit level at which the answer changes. Posts that compare payroll tax alone overstate the saving and score lower. Replies earn points by pressing on the assumption behind a classmate's answer. Statutes and IRS instructions belong in APA 7 references.
Common AC507 Unit 1 mistakes, and how to avoid them
A common weakness on this board is comparing only self-employment tax with payroll tax and announcing an S corporation saving that ignores income tax effects. Many posts pick a salary with no justification, sometimes far below what the owner would pay anyone else for the work. The pass-through deduction is forgotten in one column or computed on the wrong base. Costs of payroll, state unemployment tax and an extra return are left out. The recommendation has no threshold for revisiting it. Replies agree instead of testing numbers. If your section supplies a different owner or profit level, a writer can rebuild both columns from your facts and the tax year your course uses.
Get an AC507 Unit 1 example written to your instructions
Put the Unit 1 board question, the business your section assigns or lets you invent, and the rubric in one message. The post comes back inside 24-48h with both columns computed on shared facts, the salary justified from comparable pay, and replies drafted if the prompt calls for them. A first custom sample is free of charge. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC507 Unit 1 questions, answered
Why does the S column pay the owner a salary at all?
Because an S corporation owner who works in the business is an employee, and the IRS expects reasonable compensation before any distribution. Courts have recharacterized distributions as wages when the salary was too low for the work performed. The example sets $85,000 by reference to what a survey firm would pay a hired pilot and data analyst, and says so, since a grader will ask where the figure came from.
Are the rates in the example current?
The 15.3 percent combined payroll rate and the 92.35 percent factor are statutory and have been stable for years. The Social Security wage base, the Section 199A thresholds and the individual brackets are indexed, so the example brackets them and keys them to the year your prompt names. Profit here stays under the wage base, which keeps that figure out of the comparison; a larger business would need it.
Where can I find a free AC507 Unit 1 sample paper?
This page holds a full AC507 Unit 1 entity choice discussion post comparing a single-member LLC with an S corporation for a composite piano restoration owner, with full federal arithmetic, a reply and APA 7 references.
Why is the S corporation saving smaller than the payroll tax difference?
Wages do not count as qualified business income, so paying a salary shrinks the pass-through deduction. Here $8,189 of payroll savings gives back $4,461 of income tax, leaving about $3,728.
Is the comparison advice for a real business?
No. The owner and every figure are composite, built to show how an AC507 post compares two forms on shared facts. A real decision would depend on the owner's full return, state rules and current-year figures.