Ryan and Brian decide to form a business. Ryan will contribute $4,200 for a 35% interest and Brian will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $40,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Brian and $2,800 to Ryan. Ryan is in the 35% marginal tax bracket and Brian is in the 24% marginal tax bracket. They are both in the 15% Dividend Tax Rate. Their marginal tax brackets will not change as a result of profit or loss from this business. (Consider only income tax and no payroll taxes.)

1. What is the tax liability or savings for Ryan and Brian for year #1 and #2 if they are a partnership?

2. What is the tax liability or savings for Ryan and Brian for year #1 and #2 if they are an S-Corporation?

3. What is the tax liability or savings for Ryan and Brian for year #1 and #2 if they are a C- Corporation?