Jake would like to organize Jake's 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. Jake's 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 Jake's 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 Jake's Garage will pay out its all its after-tax earnings every year as a dividend if it is formed as a C corporation. Please prepare a working paper (using Microsoft Excel) with 3 columns comparing your calculations for the following: A. How much cash after taxes would Jake receive from his investment in the first year if Jake's Garage is organized as either an LLC, a C Corporation, or an S Corporation? B. What is the overall tax rate on Jake's Garage's income in the first year if it is organized as an LLC, a C Corporation, or an S Corporation? C. What is the overall tax effect on both Jake and Jake's Garage if Jake decides to organize Jake's Garage as a C Corporation and the elects S Corporation status? D. Add a fourth column for an explanation of how you calculated the amounts for AC above. Jake would like to organize Jake's 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. Jake's 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 Jake's 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 Jake's Garage will pay out its all its after-tax earnings every year as a dividend if it is formed as a C corporation. Please prepare a working paper (using Microsoft Excel) with 3 columns comparing your calculations for the following: A. How much cash after taxes would Jake receive from his investment in the first year if Jake's Garage is organized as either an LLC, a C Corporation, or an S Corporation? B. What is the overall tax rate on Jake's Garage's income in the first year if it is organized as an LLC, a C Corporation, or an S Corporation? C. What is the overall tax effect on both Jake and Jake's Garage if Jake decides to organize Jake's Garage as a C Corporation and the elects S Corporation status? D. Add a fourth column for an explanation of how you calculated the amounts for AC above
