Louisiana Creole Company (LCC) is a subchapter C corporation domiciled in Louisiana. In 2023, LCC realized taxable income of $2,000,000 and distributed all of its after-tax profits as a dividend to its sole shareholder, Don Tessio, a single individual. Don's dividends constitute qualified dividends for federal tax purposes. Don has $4,000,000 of ordinary income from salary as the CEO of LCC. Don's tax rate is 37 percent on ordinary income and 20 percent on long term capital gains and qualified dividends. Because Don's net investment income is above the statutory threshold of $200,000 for a single individual, he is also subject to the net investment income tax (NIIT) of 3.8%, imposed on the lesser of net investment income or the excess of modified adjusted gross income over statutory thresholds. After considering all taxes paid by LCC and Don Tessio, the effective tax rate on the income is approximately: 25.6% 31.8% 39% 42%