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Lisa would like to organize DEF (a business entity) as either an S corporation or as a C corporation. Either way, DEF will generate
Lisa would like to organize DEF (a business entity) as either an S corporation or as a C corporation. Either way, DEF will generate a 10 percent annual before- tax return on her $1,000,000 investment and will distribute a 100% of the entity's after-tax earnings each year. Lisa's marginal tax rate on ordinary income is 35 percent and her marginal tax rate on dividends is 20 percent. If DEF is taxed as an S corporation, Lisa would qualify for the 20% Qualified Business Income deduction. How much more after-tax cash flow would Lisa receive if DEF is organized as an S corporation as opposed to a C corporation? (Ignore the Passive Activity Rules and Net Investment Income Tax)
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