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 individual ordinary rates are 35 percent, corporate rates are 15 percent, and individual capital gains and dividends tax rates are 20 percent. PPS will distribute its after-tax earnings every year as a dividend if is formed as a C corporation. Assume Jack is the sole owner of the entity and is actively involved in the business. Ignore self-employment taxes.
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?