Jennifer, a married taxpayer filing a joint tax return, decides to start her own business named Jenifer Nelson Engineering Services (JNES). Jennifer asks you to perform some what if analyses to help her determine the best organizational form for her business.

Other notes include:

Compute the overall (average) tax rate as:

= (entity-level taxes (if any) + all shareholder-level taxes) / taxpayers gross income ($200,000)

Use 2022 tax rates and 2022 tax law.

Use the 2021 Schedule SE: Self-employment Tax form to compute self-employment taxes (where necessary).

Harry, Jennifers husband, has W-2 wages of $100,000. The taxpayers will take the standard deduction.

Required:

(a) Jennifer organizes JNES as a sole proprietorship. JNESs projected taxable income is $100,000. All income is considered qualified business income (QBI). Compute their overall tax liability and their overall tax rate.

(b) Jennifer organizes JNES as a corporation. JNESs projected taxable income is $100,000. JNES pays out all of its after-tax earnings each year as a dividend. Compute their overall tax liability and their overall tax rate.

(c) Jennifer organizes JNES as a corporation and then makes an S election. JNESs projected taxable income is $100,000. All income is considered qualified business income (QBI). Compute their overall tax liability and their overall tax rate.

(d) Comment on your results. What would you recommend?