Question

Andrea would like to organize SHO as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 11 percent annual before-tax return on a $200,000 investment. Andrea’s marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, Andrea will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9 percent for the additional Medicare tax. Further, she is eligible to claim the full deduction for qualified business income. Assume that SHO will pay out all of its after-tax earnings every year as a dividend if it is formed as a C corporation.

a. How much cash after taxes would Andrea receive from her investment in the first year if SHO is organized as either an LLC or a C corporation?

b. What is the overall tax rate on SHO’s income in the first year if SHO is organized as an LLC or as a C corporation?

Answer #1

Andrea would like to organize SHO as either an LLC (taxed as a
sole proprietorship) or a C corporation. In either form, the entity
is expected to generate an 11 percent annual before-tax return on a
$200,000 investment. Andrea’s marginal income tax rate is 35
percent and her tax rate on dividends and capital gains is 15
percent. Andrea will also pay a 3.8 percent net investment income
tax on dividends and capital gains she recognizes. If Andrea
organizes SHO...

Andrea would like to organize SHO as either an LLC (taxed as a
sole proprietorship) or a C corporation. In either form, the entity
is expected to generate an 11 percent annual before-tax return on a
$200,000 investment. Andrea’s marginal income tax rate is 35
percent and her tax rate on dividends and capital gains is 15
percent. Andrea will also pay a 3.8 percent net investment income
tax on dividends and capital gains she recognizes. If Andrea
organizes SHO...

Andrea would like to organize SHO as either an LLC (taxed as a
sole proprietorship) or a C corporation. In either form, the entity
is expected to generate an 10 percent annual before-tax return on a
$320,000 investment. Andrea’s marginal income tax rate is 35
percent and her tax rate on dividends and capital gains is 15
percent. Andrea will also pay a 3.8 percent net investment income
tax on dividends and capital gains she recognizes. If Andrea
organizes SHO...

Required information
Andrea would like to organize SHO as either an LLC or as a C
corporation generating an 18 percent annual before-tax return on a
$300,000 investment. Assume individual and corporate tax rates are
both 35 percent and individual capital gains and dividend tax rates
are 15 percent. SHO will pay out its after-tax earnings every year
as a dividend if it is formed as a C corporation. Assume Andrea is
the sole owner of the entity. Ignore self-employment...

Andrea would like to organize SHO as C corporation. The entity
is expected to generate an 11 percent annual before-tax return on a
$200,000 investment. Andrea's marginal income tax rate is 35
percent and her tax rate on dividends and capital gains is 15
percent. Andrea will also pay a 3.8 percent net investment income
tax on dividends and capital gains she recognizes. Further, she is
eligible to claim the full deduction for qualified business income.
Assume that SHO will...

Required information
[The following information applies to the questions
displayed below.]
Andrea would like to organize SHO as either an LLC or as a C
corporation generating an 4 percent annual before-tax return on a
$320,000 investment. Assume individual and corporate tax rates are
both 35 percent and individual capital gains and dividend tax rates
are 15 percent. SHO will pay out its after-tax earnings every year
as a dividend if it is formed as a C corporation. Assume Andrea...

Derek would like to organize LFTS as either an LLC or as a
corporation (taxed as a C corporation) generating a 12 percent
annual before-tax return on a $300,000 investment. Assume the
relevant (marginal) individual tax rate is 37% and corporate tax
rate is 21%. Derek’s capital gain and dividends tax rate is 20%
(ignore the net investment income surtax of 3.8% and the additional
Medicare tax of 0.9%. LFTS will pay out its after-tax earnings
every year to either...

Tremaine would like to organize UTA as either an S Corporation
or a C corporation. In either form, the entity will generate a 9
percent annual before-tax return on a $1,000,000 investment.
Tremaine’s marginal income tax rate is 37 percent, and his tax rate
on dividends and capital gains is 23.8 percent (including the net
investment income tax). If Tremaine organizes UTA as an S
corporation, he will be allowed to claim the deduction for
qualified business income. Also, because...

Tremaine would like to organize UTA as either an S Corporation
or a C corporation. In either form, the entity will generate a 9
percent annual before-tax return on a $1,000,000 investment.
Tremaine’s marginal income tax rate is 37 percent and his tax rate
on dividends and capital gains is 23.8 percent (including the net
investment income tax). If Tremaine organizes UTA as an S
corporation he will be allowed to claim the deduction for qualified
business income. Also, because...

Using PowerPoint or Word shapes diagram the
establishment of BAL in Question 46 under both scenarios as an LLC
or a C Corporation.
(Question 46: Amanda would like to organize BAL as either an LLC
(taxed as a sole proprietorship) or a C corporation. In either
form, the entity is expected to generate an 8 percent annual
before-tax return on a $500,000 investment. Amanda’s marginal
income tax rate is 37 percent and her tax rate on dividends and
capital gains...

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