Scenario #$1$:

PBR decided to form a limited liability company $($taxed as a partnership$).$ Allie and Cliff will each own

$50\%$ of the outstanding units, and both will provide services to the LLC as managing members. Allie and

Cliff will each be paid $$100,000$ annually for those services. During the $2024$ tax year, PBR generated a

taxable income of $$750,000($$$950,000$ less $$200,000$ paid to Allie and Cliff for their services$)$ and

reported total W$2$ wages paid to employees of $$500,000.$ Assume net taxable income is derived from

qualified trade or business activities $($SSTB is not applicable$).$

Questions:

$1)$ How much self$-$employment tax will Cliff and Allie owe for $2024?$

$2)$ Pursuant to Section $199$A$,$ what would Cliff and Allie be able to claim as QBI Deduction for $2024?$

$3)$ Assume facts were the same as above, except the total W$-2$ wages paid to employees were

$$300,000$ less. How would the answer to # $2$ above change?

$4)$ Based on the original facts above and the combined federal$/$state tax rate of $30\%,$ what is the

total income tax burden on PBR $2024$ income?

$5)$ Assume PBR would like to grant equity to a key employee; what are their options given the

entity structure described above?

Scenario #$2$:

PBR decided to form a corporation and elected S corporation status. Allis and Cliff will each own $50\%$

of the outstanding stock, and both will provide services to the corporation as employees. Allie and Cliff

will each be paid $$100,000$ annually for those services. During the $2024$ tax year, PBR generated

taxable income of $$750,000$ and reported total W$2$ wages paid to employees of $$700,000.$ $$35,000$ of

taxable income is dividend income from a passive investment held by PBR$.$ The remaining taxable

income is derived from qualified trade or business activities $($SSTB is not applicable$).$

Questions:

$1)$ How much self$-$employment tax will Cliff and Allie owe for $2024?$

$2)$ Pursuant to Section $199$A$,$ what would Cliff and Allie be able to claim as QBI Deduction for $2024?$

$3)$ Assume facts were the same, except the total W$-2$ wages paid to employees were $$300,000$ less.

How would the answer to # $2$ above change?

$4)$ Based on the original facts above and the combined federal$/$state tax rate of $30\%,$ what is the

total income tax burden on PBR $2024$ income?

$5)$ Assume PBR would like to grant equity to a key employee; what are their options given the

entity structure described above?

Scenario #$3$:

Cliff and Allie are still uncertain about entity selection and have requested your advice. They indicate

they would like to keep things $$as simple as possible$.$ They do not expect PBR to generate taxable

income for the first three years and will need to raise capital from outside sources midway through year

two based on initial cash flow projections. They have no plans to compensate employees with equity, but

least one key employee has made clear she would like to participate in ownership.

Questions:

$1)$ Based on the facts above, please summarize your entity recommendation to Cliff and Allie and include

the following items:

a$.$ Brief discussion of each the entity types: C Corporation, S Corporation, and LLC$/$Partnership relative

to the facts above.

b$.$ Specific entity type you recommend, and factors considered in arriving at that conclusion.

c$.$ Are there any other factors you think Cliff and Allie should consider in making this decision?