2019 Taxes!

Spilker, Essentials of Federal Taxation, 2020 11th edition.

Tremaine would like to organize UTA as either an S Corporation or a C corporation. In either form, the entity will generate a 9 percent annual before-tax return on a $1,000,000 investment. Tremaines marginal income tax rate is 37 percent and his tax rate on dividends and capital gains is 23.8 percent (including the net investment income tax). If Tremaine organizes UTA as an S corporation he will be allowed to claim the deduction for qualified business income. Also, because Tremaine will participate in UTAs business activities, the income from UTA will not be subject to the net investment income tax. Assume that UTA will pay out 25 percent of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Do not round intermediate calculations and round your final answers to the nearest whole dollar.)

Problem 12-48 Part a

a. How much cash after taxes would Tremaine receive from his investment in the first year if UTA is organized as either an S corporation or a C corporation?

Required information Problem 12-48 (LO 12-3) [The following information applies to the questions displayed below.] Tremaine would like to organize UTA as either an S Corporation or a C corporation. In either form, the entity will generate a 9 percent annual before-tax return on a $1,000,000 investment. Tremaine's marginal income tax rate is 37 percent and his tax rate on dividends and capital gains is 23.8 percent (including the net investment income tax). If Tremaine organizes UTA as an S corporation he will be allowed to claim the deduction for qualified business income. Also, because Tremaine will participate in UTA's business activities, the income from UTA will not be subject to the net investment income tax. Assume that UTA will pay out 25 percent of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Do not round intermediate calculations and round your final answers to the nearest whole dollar.) Problem 12-48 Part a a. How much cash after taxes would Tremaine receive from his investment in the first year if UTA is organized as either an S corporation or a C corporation? Answer is complete but not entirely correct. After-tax cash flow $ 63,360 $ 54,178 corporation corporation