David would like to organize HOS (a business entity) as a corporation taxed as either an S-corporation or a C-corporation. David projects HOS will generate a 12 percent annual before-tax return on a $500,000 investment. David's marginal tax rate is 37 percent, and the corporate tax rate is 21 percent. David's marginal tax rate on individual capital gains and dividends is 23.8% (20% + 3.8% NIIT). HOS will payout 100% of its after-tax earnings every year to its shareholders. If HOS is taxed as an S-corporation, David's business income allocation would be subject to a 3.8 percent net investment income tax (he is a passive investor in the business). The business income allocation qualifies for the qualified business income deduction.

1. What is David’s after-tax income if HOS is organized as either an S corporation or a C corporation (show your work)?
2. What are the overall tax rates (combined owner and entity level) if HOS is organized as either an S corporation or a C corporation (show your work)
3. Which tax entity classification should David form HOS?