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 is 23.8 percent (including the 3.8 percent net investment income tax). If Amanda organizes BAL as an LLC, she 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. Also, she is eligible to claim a full deduction for qualified business income on BAL's income. Assume that BAL will distribute half of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Do not round intermediate calculations and round your final answers to the nearest whole dollar.) a. How much cash after taxes would Amanda receive from her investment in the first year if BAL is organized as either an LLC or a C corporation? After-tax cash flow LLC C corporation Show Transcribed Text b. What is the overall tax rate on BAL's income in the first year if BAL is organized as an LLC or as a C corporation? (Round your final answers to 2 decimal places.) LLC C corporation Overall Tax Rate
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 is 23.8 percent (including the 3.8 percent net investment income tax). If Amanda organizes BAL as an LLC, she 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. Also, she is eligible to claim a full deduction for qualified business income on BAL's income. Assume that BAL will distribute half of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Do not round intermediate calculations and round your final answers to the nearest whole dollar.) a. How much cash after taxes would Amanda receive from her investment in the first year if BAL is organized as either an LLC or a C corporation? After-tax cash flow LLC C corporation Show Transcribed Text b. What is the overall tax rate on BAL's income in the first year if BAL is organized as an LLC or as a C corporation? (Round your final answers to 2 decimal places.) LLC C corporation Overall Tax Rate
Chapter13: Choice Of Business Entity—general Tax And Nontax Factors/formation
Section: Chapter Questions
Problem 75DC
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Transcribed Image Text: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 is 23.8 percent (including the 3.8 percent net investment income tax). If Amanda organizes BAL as an LLC, she 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. Also, she is eligible to claim a full deduction for qualified business income on BAL's income. Assume that BAL
will distribute half of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Do not round intermediate calculations and round your final answers to the nearest whole dollar.)
a. How much cash after taxes would Amanda receive from her investment in the first year if BAL is organized as either an LLC or a C
corporation?
After-tax cash
flow
LLC
C corporation
Show Transcribed Text
b. What is the overall tax rate on BAL's income in the first year if BAL is organized as an LLC or as a C corporation? (Round your final
answers to 2 decimal places.)
LLC
C corporation
Overall Tax Rate
%
%
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