Question: Jack would like to organize PPS as either an LLC or as a C corporation generating an 11 percent annual before-tax return on a $100,000

Jack would like to organize PPS as either an LLC or as a C corporation generating an 11 percent annual before-tax return on a $100,000 investment. Assume Jacks marginal tax rate on earned income is 38 percent (including the .9 percent additional Medicare tax and 2.9 percent self-employment tax), the corporate rate is 15 percent, and individual capital gains and dividend tax rates are 23.8 percent (including the 3.8 percent net investment income tax). PPS will distribute its after-tax earnings every year as a dividend if it is formed as a C corporation. Assume Jack is the sole owner of the entity and materially participates in the business.

a. How much would Jack keep after taxes if PPS is organized as either an LLC or as a C corporation?

	After-Tax Earnings
LLC
C corporation

b. What are the overall tax rates if PPS is organized as either an LLC or as a C corporation?

	Overall Tax Rate
LLC		%
C corporation		%

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