I:18-28 Proprietorship Versus C Corporation. Myron has $10,000 to invest in a business. He can either (1) operate as a sole proprietor or (2) form a regular C corporation by contributing the $10,000 in exchange for corporate stock. In either case, the $10,000 will be invested in business assets and will earn a 10% BTROR for the first five years and an 18% BTROR for years six through 15. All after-tax earnings will be reinvested in the business. If Myron uses the corporate form, the corporation will liquidate at the end of the investment horizon.

Myron’s personal tax rate is 40%; the corporate tax rate is 21%; and the tax rate on capital gains for individuals is 20% (assume no Sec. 1202 exclusion for gain on the sale of small business stock). Determine whether Myron should operate as a sole proprietor or form a C corporation if the investment horizon is 15 years. For the sole proprietorship, do the analysis with and without the qualified business income (QBI) deduction. Show the after-tax accumulation and annualized after-tax rate of return for each alternative.