Jake would like to organize Jakes Garage as either a single-member LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 11 percent annual before-tax return on a $200,000 investment. Jakes marginal income tax rate is 35 percent and his tax rate on dividends and capital gains is 15 percent. Jake will also pay a 3.8 percent net investment income tax on dividends and capital gains he recognizes. If Jake organizes Jakes Garage as a single member LLC, Jake will be required to pay an additional 2.9 percent for self-employment tax and an additional .9 percent for the additional Medicare tax. Further, he is eligible to claim the deduction for qualified business income (Section 199A). Assume that Jakes Garage will pay out its all its after-tax earnings every year as a dividend if it is formed as a C corporation.

1. How much cash after taxes would Jake receive from his investment in the first year if Jakes Garage is organized as either an LLC, a C Corporation, or an S Corporation?
2. What is the overall tax rate on Jakes Garages income in the first year if it is organized as an LLC, a C Corporation, or an S Corporation?
3. What is the overall tax effect on both Jake and Jakes Garage if Jake decides to organize Jakes Garage as a C Corporation and the elects S Corporation status?
4. Add a fourth column for an explanation of how you calculated the amounts for A - C above.

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