Jack would like to organize PPS as either an LLC or as a C corporation generating an

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 investment. Assume Jack’s marginal tax rate on earned income is 38 percent (including the .9% additional Medicare tax and 2.9% self-employment tax), the corporate tax rate is 15 percent, and individual capital gains and dividends 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?

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

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...