Evon would like to organize SHO as either an S corporation or as a C corporation generating a 9 percent annual before-tax return on a $200,000 investment. Assume individual and corporate tax rates are both 35 percent and individual capital gains and dividend tax rates are 20 percent. SHO will pay out its after-tax earnings every year as a dividend if it is formed as a C corporation. Assume Evon is the sole owner of the entity and ignore FICA taxes. Finally, assume Evon is actively involved in the business.
a. How much would Evon keep after taxes if SHO is organized as either an S corporation or as a C corporation?
b. What are the overall tax rates if SHO is organized as either an S Corporation or as a C corporation?