Consider the following facts R f R c 18 t c 34 t p 40 for ordinary income 20 for capital gains n 5, 25, or 50 years Other information cent The corporation is formed with a $10,000 contribution cent The corporation pays no dividends cent Assume the Sec 1202 exclusion for gain on the sale of small bu...

The following table summarizes the four alternative models Years n 5 25 50 S corporation t p 40 ATA ...

Consider the following facts: R f = R c = 18% t c = 34% t p

Question:

Consider the following facts:
R_f= R_c= 18%
t_c= 34%
t_p= 40% for ordinary income
= 20% for capital gains
n = 5, 25, or 50 years

Other information:
€¢ The corporation is formed with a $10,000 contribution.
€¢ The corporation pays no dividends.
€¢ Assume the Sec. 1202 exclusion for gain on the sale of small business stock does not apply.
a. Using the format below, compare after-tax accumulations for each investment horizon. Should the corporation make the S election for any of these investment horizons?
b. How does your answer change if t_p for ordinary income is 35% instead of 40%?
c. Now assume a 100% Sec. 1202 exclusion applies. How does your answer change in comparison to the S corporation alternative in Part b?

Years (n) 25 50 S corporation (t, = 40%) C corporation (no exclusion) S corporation (t, = 35%) C corporation (100% exclu