Agatha is planning to start a new business venture and must decide whether to operate as a sole proprietorship or C corporation. She projects that the business will generate annual cash flow and taxable income of $100,000. Sandy's personal marginal tax rate, given her other sources of income, is 35 percent. (Ignore any employment tax consequences.)

(a)If Agatha operates the business as a sole proprietorship, calculate the annual after-tax cash flow available for reinvestment in the business venture. Assume the sole proprietorship will qualify for the 20 percent Section 199A deduction.

(b)If Agatha operates the business as a regular C corporation that makes no dividend distributions, calculate the annual after-tax cash flow available for reinvestment in the business.

(c)Now suppose Agatha wishes to withdraw $20,000 per year from the business and will reinvest any remaining after-tax earnings.1)What are the tax consequences to Agatha and the business of such a withdrawal if the business is operated as a sole proprietorship?2)How much after-tax cash flow will remain for reinvestment in the business?

3)How much after-tax cash flow will Agatha have from the withdrawal?

(d)What are the tax consequences to Agatha and the business of a $20,000 withdrawal in the form of a dividend if the business is operated as a C corporation?1)How much after-tax cash flow will remain for reinvestment in the business? 2)How much after-tax cash flow will Sandy retain from the dividend?

(e)If Agatha wants to operate the business as a corporation but also wants to receive cash flow from the business each year, what would you recommend to obtain a better tax result?