Tawana owns and operates a sole proprietorship and has a 40 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

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

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)?

How much money would this strategy save?

this strategy will save tawana $_____ pre tax and will save the family $_______ after tax.